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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 10608
Experience:  FCCA FCMA CGMA ACIS
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I hear there is the term used as `business expense`? What

Customer Question

I hear there is the term used as `business expense`? What does it mean? Could you give me an example and when can something be qualified as a `business expense`?
Submitted: 20 days ago.
Category: Tax
Expert:  bigduckontax replied 20 days ago.

Are you self employed?

Customer: replied 20 days ago.
No, I am a Limited Company Director, and the only employee.
Expert:  bigduckontax replied 20 days ago.

As a director you may only be remunerated through PAYE channels with Income Tax (IT) and national Insurance (NI) deductions made. Business expenses, which would include these imposts, would be passed through the trading account of the company and reduce the exposure to Corporation Tax (CT).

Customer: replied 19 days ago.
in the sentence: "Business expenses, which would include these imposts, would be passed through the trading account of the company and reduce the exposure to Corporation Tax (CT)." .... do you mean something qualified as a business expense, would mean a reduction in Corporate Tax (CT).And for the directors PAYE payroll, there is nothing more to be payed apart from the NI Tax and Income Tax, correct?
Expert:  bigduckontax replied 19 days ago.

Correct, they would be set against the CT computation.

As for the remuneration, correct, but the gross amount paid and the employer's share of NI would be a business expense.

Customer: replied 19 days ago.
for example if I own for this tax year a total corporation tax (CT) of £1000 (19% of my total profit / revenue), and I had a total business expense of £500 to purchase a new laptop and pay for website-hosting to maintain my website, would I own a Total of £*****(1000- 500) to the HMRC ?
Expert:  bigduckontax replied 19 days ago.

Tax on the reduced sum, correct.

Customer: replied 19 days ago.
Ok, perfect, so how do I prove to HMRC that it was a business expense? Do I simply provide an invocie? Does the payment for a `business expense` can only be made using the Business Bank Account?
Expert:  bigduckontax replied 19 days ago.

If challenged, yes, but most unlikely.   Having said that, on a VAT inspection once I was asked to provide the supporting voucher for 13p, yes,  thirteen pence, of input tax reclaimed.

Customer: replied 19 days ago.
Ok, but now you mention VAT, but I am a non-registered VAT Limited Company. So will the term `business expense` still apply to me?
Expert:  bigduckontax replied 19 days ago.

Yes, of course.

Customer: replied 19 days ago.
Ok, wonderful, but you have also mentioned in the previous message that "the gross amount paid and the employer's share of NI would be a business expense.", what do you mean by this? Is National Insurance Contribution also considered as business expense? And what do you mean by the `gross amount paid`?
Expert:  bigduckontax replied 19 days ago.

A limited company paying a wage has to pay an employer's NI contribution, that added to the gross wage offsets CT.

Customer: replied 19 days ago.
But how does that work? If the employee is the one that get a deduction on their salary on Income Tax & National Insurance?How can a company paying a wage/salary pay also the NI contribution, which decreases the CT? I don't understand...
Expert:  bigduckontax replied 19 days ago.

The company deducts the employee's NI contributions and pays them to HMRC; in addition it also pays the employer's element of the contributions.

Customer: replied 18 days ago.
Wait... so the company pays National Tax Insurance twice?
Customer: replied 18 days ago.
Once on the company's behalf; and then on behalf of the employees salary?
Expert:  bigduckontax replied 18 days ago.

Correct.

Customer: replied 17 days ago.
But... I am already paying the Corporation Tax (19%)... is this double National Insurance Taxation on-top of the Corporation Tax??
Expert:  bigduckontax replied 17 days ago.

So what; NI is a separate taxation system from Corporation Tax (CT) or Income Tax(IT).

Customer: replied 17 days ago.
The company is
- taxed on National Insurance (twice),
- and Corporation Tax (19%)The employee is:
- taxed on just Income Tax
- and receives National Insurance Payment Contribution from the Company...Is this correct? Are there any other taxations or methods for the government to take money away...?
Expert:  bigduckontax replied 17 days ago.

No, the company pays employer's NI contributions, employees NI is deducted from emoluments paid to them. The employee pays both IT and NI deducted from their emoluments.

Customer: replied 17 days ago.
Ok, so the company pays:
- Corporation Tax (19%) from their profits / revenue every 9 months,
- National Insurance on behalf of the employees (deducted from the employees salary),
- Does the company also pay the Income Tax similar to NI contribution (deducted from the employees salary) ?
Expert:  bigduckontax replied 17 days ago.

The company does not pay CT every nine months, but every 12.

Employees NI is deducted from their emoluments.

The company does pass the IT deducted from the employees emoluments to HRC.

The employer also passes the employer's element of NI to HMRC.