First and foremost, I want to dispel the myth that you can claim anything as a business expense... You can't. FACT.
The main rule is that the expenditure must be wholly and exclusively for business. However, just because it's for business doesn’t mean it's tax deductible. That is, you can include it in your profit and loss, but you can't claim it for tax purposes. Below I’m going to try and cover the main pitfalls of creative clients.
ENTERTAINING
Entertaining, in a nutshell is when you take a supplier or customer out and provide them with food and/or drink. A good example is going out for a “business lunch” with the director of a show. If you pay for your meals separately that’s (usually – more on this later!) ok, but if you pay for both, you can only claim your half as a tax expense.
Is it that simple… nope… Tax is rarely that simple! If you have staff and took them out for a meal, that’s ok. For example, you can pay £150 per head for a Christmas dinner. Careful though! If you go over the £150 you lose the allowance entirely.
DUAL PURPOSE ITEMS
Some things have a dual purpose, i.e. is part business and part personal. In these situations, you can only claim the business part and not the personal part (For example your home broadband). Sounds fair enough. Again, not so straight forward. For example, if you set out on a “business” trip that was always partly for business and partly personal it will not be allowed.
On top of this, there are some items that have an “intrinsic duality of purpose”. This basically means no matter your intention of the expense, there will always be a non-trade element to it. A common example is gym membership. This comes under the “wishing to enjoy good health” element regardless of whether you need to keep fit for your job. You can’t claim say 50% for business and 50% for personal, because keeping fit and healthy is not wholly for business, you need to keep fit and healthy as a human being (yes, I know some people don’t, but that isn’t a defence!).
SPECIAL RULES
Some expenses have special rules, for example,if you’re transporting scenery in a van/truck you can claim all the fuel, but if you’re a company director and took some props to a theatre in your car you would pay benefit in kind tax on any fuel (you claim mileage instead).
LIMITED COMPANIES
Of course, if you’re a limited company, you can follow the advice above, but often especially around questionable expenses the rules are even more complex. They may come under the Benefit in Kind rules. This subject is too big to talk about here and will be in a future blog post!
MEALS
I said earlier that usually a meal is allowable… key word usually. You can claim a meal as business expense if you are away from your usual place of work and your duties require you to be away. For example, if you’re on an job in Scotland but your “usual place of work” (i.e. your home!) is in Cornwall, you’ll be able to claim meals. In reality, on tour, you are often given an allowance or supplement to cover food and accommodation, so this has to be included in your profit and loss.
RESEARCH
An often-abused area is research. Yes, it is true you can claim theatre tickets or cinema tickets as research, but you must be able to provide an explanation. For example, you are unlikely to be able to claim Avengers: Endgame if you’re a classically trained Shakespearean actor! (you could claim to see King Lear though!)
All this seems contradictory… and it often is!
“so, I can sometimes claim something and sometimes I can’t claim the exact same thing?”
Honest answer…. Yes
When I was a lowly trainee accountant, I would often ask my boss if something was allowable or what tax rules applied. His answer was always the same:
IT DEPENDS
And it really does depend on:
What it is
What it’s for
What kind of business you’re in
What special rules apply to the item/business
Unfortunately, there isn’t a single list of “approved” expenses because each situation is different and must be treated as such.
If you now understand what you can and can’t claim I would argue you’re an accountant or tax inspector!
If you are in ANY doubt, ask us. There is no such thing as a stupid question when it comes to tax!