UK Publishes Guidance on Types of Expenses That Can Be Deducted Before Corporate Tax

On November 11, the Companies House published a guidance on several types of costs of running the company to calculate its taxable profit.

These costs are called revenue expenses (also known as business expenses) and must be included in the company’s accounts.

Revenue expenses are costs that do not result in buying, selling or changing a capital asset or any other capital expenses (on equipment, machinery and business vehicles).

These expenses can be fully deducted from the company’s profit if it both:

• is not specifically disallowed, such as expenses for entertaining clients;

• only has a business purpose under the “wholly and exclusively” principle (expenditure cannot be deducted in computing trading profits unless it is incurred wholly and exclusively for the purposes of the trade, profession or vocation).

If an expense has a non-business and business purpose, it is possible to deduct part of a revenue expense if it is possible to clearly separate the business part from the non-business part.

These principles also apply to groups of companies and must be followed along with additional guidance for specific groups of companies.

Guidance “Company expenses you can deduct before paying Corporation Tax”