Ask the Expert: Before you put it through the Business… By Andy Webb, Business Services Director

From staff rewards to entertaining and everyday expenses, seemingly simple decisions can have unexpected tax consequences.

“Can I put that through the business?” It’s one of those questions we as accountants hear all the time. And usually, the answer starts with: "it depends", and we aren't trying to be awkward!

Running a business creates plenty of situations where the line between company and personal expenditure can feel less than obvious. A meal with a client. A thank-you gift for an employee. The Christmas party. A new mobile phone. Travel costs. Something you use partly for work and partly at home. Then there are the bigger questions. Can the company pay for it? Is it a business expense? Is it tax deductible? Will there be a personal tax consequence? These might sound like different ways of asking the same thing. In tax terms, they’re not.

1. Who is actually benefiting?

This is often a useful place to start. An expense might have a clear business purpose, be partly personal or provide a benefit to an employee or director. Those distinctions can affect how it needs to be treated for tax and reporting purposes. The important point is not to assume that because something has been paid from the company bank account, it automatically qualifies for tax relief.

2. Is it for your team or your clients?

As the festive season approaches, businesses naturally start thinking about thanking employees and clients. But a staff event, a gift for an employee and entertaining a customer are not necessarily treated in the same way. There are specific tax rules around employee benefits, staff entertaining and business entertaining. So before deciding what the company will pay for, it’s worth understanding which rules apply to what you’re proposing.

3. Is there a personal element?

Phones, travel, vehicles, subscriptions and costs associated with working from home are common examples of expenditure where business and personal use can sometimes overlap. The circumstances matter. Something being useful for your work doesn’t necessarily make the whole cost a business expense. Equally, there may be perfectly legitimate ways for a company to meet certain costs. The key is understanding the treatment rather than making an assumption.

4. Are you taking money from the company?

For owner-managed businesses, another common misconception is that company money and personal money are effectively the same thing. They aren’t. Salary, dividends, expenses and money taken through a director’s loan account can have very different tax and accounting consequences. How you take money from your business is therefore something to consider properly, rather than simply transferring funds and working out the treatment afterwards.

5. Have you talked it through?

Perhaps this is the most useful point of all. If you're unsure how something should be treated, it's worth having the conversation while you're considering it.

There is often much more we can do when we understand what a client is thinking about beforehand. We can explain the tax and accounting implications, identify anything that needs to be recorded and, where appropriate, discuss the options available.

Once something has already happened, the conversation can become much more about correctly reporting the decision that was made.

More than a year-end conversation

This is why we believe the relationship between a business owner and their accountant can extend beyond annual accounts and tax returns.

Those are important, but they’re only part of the picture.

When we understand a client’s business and maintain an ongoing relationship, they can pick up the phone when everyday questions arise. Those conversations also help us understand what’s changing: perhaps the business is growing, new people are joining, the owner’s plans are evolving or a bigger decision is on the horizon.

So, next time you find yourself hovering over the company card wondering, “Can I put that through the business?”, ask your accountant. A quick conversation can help you understand the implications before the decision is made, rather than trying to unravel things later.

Need advice?
If you’d like a more proactive relationship with your accountant and tax adviser, we’d be delighted to talk.