Small Business Owners Not Claiming Business Expenses Up To £5.6B

65% of business owners admit to not claiming a business expense. But it’s important to claim the relief you are entitled no matter how small individual claims may seem.

Small Business Owners Not Claiming Business Expenses Up To £5.6B

Research into small business expenses has revealed that £5.6 billion ($7.73 billion) of expenses go unclaimed as a result of hesitancy to include them in tax returns.

The survey from online accounting services provider The Accountancy Partnership in the UK found that more than eight in 10 (81%) SME owners do not fully understand what qualifies as a legitimate business expense and this lack of awareness is leading to missed claims in fear of HMRC penalties.


Businesses Lack Awareness on Legitimate Business Expenses


Two-thirds (65%) of business owners admitted to not including their legitimate business expenses, with some small businesses failing to claim more than £10,000 in taxable expenses, which is hampering their profitability, the study found.

More than half (55%) of business owners check what qualifies as a business expense online before incurring commercial costs, and a further 10% of business owners – approximately 600,000 – were unsure what qualifies as a legitimate business expense.


Reasons SMEs Are Hesitant to Claim Expenses


Insights from the research also reveal that as many as 132,000 SME owners are hesitant to claim expenses for their business in case of HRMC tax penalties, which can have considerable impact on a business’s finances.

Furthermore, 43% of business owners have failed to claim businesses expenses due to lost receipts and invoices, while a further 36% were simply unsure whether it would pass HRMC’s stringent rules.

Worryingly, 41% could not be bothered or didn’t have the time to file expenses, meaning many are missing tax relief that could be beneficial to their business.

Lee Murphy, managing director of The Accountancy Partnership, said:

“Business finance can be bewildering to many owners and employees, however, we urge everyone to claim the relief they are entitled to no matter how small individual claims may seem.

When aggregated, many businesses are missing out on considerable amounts of tax relief, which can make a big difference to their tax bill, and therefore influence their profitability and even the future health of their firm.” 


Business Tax Reliefs That Can Make a Big Difference


Of SME owners surveyed, 41% said they were hesitant to expense food and drink, with what qualifies as subsistence in HRMC’s rules somewhat of a grey area as the cost must arise out of necessity and be considered reasonable from a business perspective.

43% of respondents were also unlikely to claim for tax relief on work clothing and uniform, despite the fact that businesses can claim relief on personal protective equipment like high-vis jackets and safety boots.

A third (33%) of businesses fail to claim vehicle expenses, including insurance, road tax, and fuel, with HMRC permitting expense claims of 45p per mile tax-free as a business mileage allowance for the first 10,000 business miles in a year if you use your own car for a business journey.

Lee commented:

“While some of the guidance from HRMC may be difficult to interpret or apply to your own business, using a finance and accounting professional can help demystify the situation as well as ensure your business is in the best financial health possible.”

What may feel like dubious expenses are often allowable as many of them can be claimed if they occurred as a result of direct business circumstances.

“Despite an annual rush to get tax returns completed and submitted, all SME owners should make time to keep and record important financial documents,” he concluded.