You check the calendar and smack your forehead in alarm. You want to claim several business expenses, but you’re not sure where the receipts for those purchases are – or if you still have them.
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If you’re a business owner, you know how busy life gets. It’s easy to lose track of time and let accounting fall by the wayside.
However, keeping track of your receipts and other proofs of purchase will make life much easier down the road.
Here’s everything you need to know about keeping receipts and claiming expenses as a business owner.
Please note: The content provided in this blog is for informational purposes only. For more detailed advice, consider consulting a tax professional.
Expense Claims: What Types of Expenses Can You Claim?
As every entrepreneur knows, running a business is expensive. It takes time to make money, and you have to pay taxes on your profit.
In the United Kingdom, businesses can reduce their tax burden by keeping a documented list of business expenses. Personal expenses don’t count, but you can sometimes claim a portion of personal expenses if you use items for both business and your personal life.
For example, you might be able to claim a portion of your rent if you work from home.
Claiming your expenses makes running a business easier and encourages entrepreneurship. It allows you to put some of your hard-earned money back into your business without having to pay taxes on the expense.
What can you claim as a business expense in the UK?
In the UK you can claim the following as business expenses:
Office supplies
Fuel for driving to work
Marketing services
Legal costs
Financial services
Rent and utilities
Council taxes
If going through your records sounds exhausting, you can always claim flat-rate simplified expenses for your business instead.
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These are previously specified expenses you can automatically claim if you meet certain business requirements. Sole traders and business partnerships that don’t involve a company can claim simplified expenses.
Does HMRC Need Original Receipts for Business Expenses?
You may have heard that you need receipts to substantiate business expenses to Her Majesty’s Revenue and Customs department (HMRC).
However, what happens if you’ve lost your receipts or forgotten to keep them in the first place? Can you still get a tax deduction on those items?
In most cases, the answer is yes. You don’t have to submit receipts when you report business expenses. However, you should have them easily accessible in case HMRC has additional questions and requires valid proof of purchase. Generally, HMRC is looking for records that provide detail about a purchase.
There are many reasonable ways that you can provide proof of purchase to HMRC. However, receipts are often the easiest way to show that a purchase counts as a business expense.
If you dislike retaining paper copies of your receipts, you can always scan and store your receipts digitally for easy access.
The best way to ensure you get business deductions is to create a sustainable process for keeping track of your records.
No one wants to go through a bag of receipts every three months.
The sooner you take notes after making a purchase, the more detail you’ll remember. Storing receipts and other records immediately saves time and stress later.
In some cases, you may not have access to receipts. For example, you may run a store on eBay that sells second-hand goods. In that case, your records may look different from that of a more traditional business. Thankfully, HMRC takes each business on a case-by-case basis and considers unusual factors when reviewing tax documents and tax returns.
What Is a Valid Proof of Purchase for a Business Expense?
In addition to receipts, there are several other types of records that may help you explain business expenses. Valid proofs of purchase are official, detailed records that confirm your payments as business expenses to HMRC. In addition to receipts, official contracts and invoices are also considered valid proofs of purchase.
In most cases, credit card statements and cancelled checks aren’t considered valid proofs of purchase for business expenses. These types of records don’t contain enough information to make them useful to the tax authorities.
As a business owner, it’s up to you to check official requirements and ensure you’re keeping records that will satisfy HMRC as to the validity of your business expenses.
In some cases, taking detailed notes may be enough to satisfy the HMRC. These notes can be matched up with your bank statements or credit card statements to create a full picture of your business expenses. The more clarity you can create in your records, the less confusion you’ll face if HMRC wants to double-check your business expenses.
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What happens if you don't have valid proof purchase?
If you don’t have any valid proof of purchase for business expenses, HMRC may decide to take unsubstantiated expenses off your deductions. This means you’ll have to pay taxes on these expenses just like you do on the rest of your income. Although people do go to jail for tax fraud, you won’t be imprisoned for forgetting to keep receipts.
Paying extra taxes is the worst thing that can happen to business owners if they lose or forget to collect valid proofs of purchase for business expenses.
Receipts are usually the easiest way to keep track of business expenses, which is why business owners are frequently reminded to collect and track them.
Business Expenses: Can I Claim Expenses Without a Receipt?
The simple answer is yes, you can claim most business expenses without a receipt. However, if you don’t have valid proof of purchase, you may lose your claim to business deductions if HMRC chooses to investigate your claims.
In some industries, detailed personal notes combined with official records may be enough to substantiate your claim.
If reviewing your records for business transactions is too much of a headache, you can always apply for flat-rate simplified expenses instead. That way, you can receive an income tax reduction without having to hunt down old receipts to see exactly how much you spent.
Although paperwork can be frustrating, it’s always best to keep detailed records as a business owner.
How Paperless Expense Management Can Help
Expense management software, such as ExpenseIn, helps you to keep on top of your business expenses. Through the mobile app, you can create expenses on the go, and our receipt scanning extracts all of the relevant data automatically.
