Company expenses
For an expense to be allowable for corporation tax purposes, it must
be incurred wholly and exclusively for the purpose of the trade.
This means that the expense must be incurred for
the purpose of enabling a person to carry on and
earn profits of the trade.
This definition is not always clear cut therefore this
fact sheet aims to provide some guidance on the
grey areas.
Problem expenses
Unpaid pension contributions
Unpaid employers pension contributions at the yearend are not allowable for corporation tax purposes.
Tax relief is available in the year the payment is
made.
Accrued salary and employers’ national insurance
Accrued salary which remains unpaid 9 months after
the year end is not allowable for corporation tax
purposes. Tax relief will be available in the year the
payment is made.
Repairs and renewals
The cost of repairs are usually revenue and allowable
for corporation tax.
The same rule applies for the like for like replacement
of an item which is a subsidiary part of a larger asset,
for example replacing a window.
In the situation where an improvement of the original
item has taken place, for example a 2 piece bathroom
suite has been upgraded to a 3 piece suite, this is not
a revenue repair and should be treated as capital. In
this example, the bathroom suite is likely to qualify for
capital allowances, so tax relief is still available on the
expenditure.
If an asset has been recently purchased and repairs
are undertaken to restore the item to a usable
condition, these ‘repairs’ will be treated as capital
expenditure.
Entertainment
Staff entertaining is an allowable expense for
corporation tax purposes.
Client entertaining is not an allowable expense for
corporation tax purposes.
Please see the staff expenses flowchart for further
details and employment tax rules.
Donations
Small donations to local charities are allowable as a
trading expense.
Donations to national charities are treated as a
charge on income. If the company has taxable profits,
a national donation will reduce the taxable profits.
However, if the company is in a making loss position,
a national donation will not increase the losses.
Legal and professional fees
Legal and professional fees are not allowable
if they have been incurred for a capital purpose
or non-trading purpose, for example a company
reorganisation or architect’s fees for building work.
A list of potential costs you may incur and their tax treatment is detailed below.
Expense
Trademark registrations
Allowed
Disallowed
X
Purchase/sale of property
X
Taking out a new lease (either short or long)
X
Renewing an existing lease (Short <50 years)
X
Renewing an existing lease (Long >50 years)
X
Taking out options to lease land
X
Valuation fees for purchase/sale of property
X
Valuation fees for insurance cover/revaluation for accounts
X
Company reorganisation
X
Share issue/share transfers etc
X
Company purchase of own shares
X
EMI – running costs
X
EMI set up – grant of options
X
Incorporation costs
X
Finance raising (even for aborted expenditure) (but not a share issue)
X
Preparation of normal trade/service agreements
X
Debt collection
X
Defending title to fixed assets
X
Defending existing trade rights
X
Employment advice
X
Stamp duty
X
Due diligence work re potential acquisition/sale
X
Rates review
X
Pension advice
X
Building inspection for insurance purposes
X
Architects fees re building work
X
Fees for corporation tax enquiries which lead to amendments
X
Director’s personal tax fees (should go on P11D)
X
Dilapidation settlements
X
Website development if site not used for selling
X
Obtaining licences
X
X
Structural engineer/building work
Architects fees for repair work
X
X
Architects fees for new building work
Health & safety advice
X
Reviewing Articles of Association/documents for AGM
X
Late filing penalty re Companies House
X
Planning permission
X
Company name change
X
Fines
Parking fines for staff who have received a ticket
whilst on work duties are allowable for corporation tax
purposes.
Parking fines for company Directors are not
allowable for corporation tax purposes.
Late submission penalties, for example VAT returns,
corporation tax returns, Companies House returns,
are not allowable for corporation tax purposes.
How can we help?
For more information please contact:
John Walker
Tax Director Glasgow
0141 567 4500
[email protected]
Kathryn O’Donnell
Tax Manager Edinburgh
0131 473 3500
Kathryn.O’Donnell
@scott-moncrieff.com