Allowable Expenses and Capital Allowances

Almost every deduction question in this module starts from a single statutory test: the expense must be incurred wholly and exclusively for the purposes of the trade. This section states that test plainly, then works through what makes it hard to apply — the duality problem and whose purpose actually matters, when a cost can genuinely be apportioned and when it cannot, and the distinction between revenue and capital spending that runs underneath everything that follows. It closes with the point most often missed: the company's deduction and the director's benefit in kind are two different questions with two different answers.

This is the section most often got wrong, because the rules for a director working from home are completely different from the rules for a self-employed person — and most published guidance is written for the self-employed. A director is an employee of a separate company, not a sole trader apportioning household bills. This section sets out the three routes actually available to a company, what each requires and what each is worth, and puts them side by side.

An IT company buys four different kinds of thing, and each is treated differently: consumables used up in the business, equipment the company keeps and uses, hardware bought to sell on to clients, and software — which straddles the line and needs its own rule. This section draws those dividing lines, explains when a purchase becomes capital, and deals with what happens when company equipment is also used personally.

Capital spending is not deductible as a trading expense; capital allowances are the separate relief that applies instead. The headline for an IT company is simple — most equipment gets full relief in the year of purchase — and then the detail matters for the cases where the headline does not apply. This section covers the routes to relief in the order you consider them, why cars are excluded and what follows from that, how the pooling mechanism works, when relief can be clawed back, and the timing decisions around the year end.

There are two ways to be covered for business motoring, and they are not two versions of one thing — they are separate systems with different consequences on both sides. This section works through the company car route (the benefit charge, capital allowances stacked on top, the fuel benefit trap, and charging costs on an electric car) against the private car and mileage route, then addresses the question that actually gets asked: which one, and on what basis.

A small area with a rule sharp enough to deserve its own section: for the mobile phone exemption, whose name is on the contract is decisive, and the difference is large relative to the sums involved. This section explains why, covers the separate treatment of broadband, and shows what changes when the contract sits in the wrong name.

The starting point catches every new business owner: travel from home to a permanent workplace is ordinary commuting, and it is a private journey however the company pays for it. This section covers what does qualify — the temporary workplace rule and the twenty-four-month limit, travel in the actual performance of duties, subsistence and overnight costs — and addresses the personal service company boundary, where a home-based IT company's position needs more care than it first appears.

Ordinary hospitality provided to clients, prospects or suppliers is not deductible, however commercial the motive. This section explains the block and its narrow exceptions, then covers the two areas where relief does exist: the annual event exemption for genuine staff entertaining, and trivial benefits — both of which have conditions that must be met exactly rather than approximately.

Training sits under two different sets of rules, one for the self-employed and one for a company training its employees, and both are more generous than they used to be. The older, harsher version of each is still repeated widely, so this section states both accurately, explains what changed and when, and adds one caution that applies specifically to a company rather than a sole trader.

A deduction is only as good as the evidence behind it. This section sets out what supports a claim in each of the categories above, how long records have to be kept, and which categories are most likely to be questioned — including the single record most often missing when it is needed.

The module's categories, assembled into one year for a single company: what each item resolved to, what was deductible, and what was relieved differently. It closes with the four points worth carrying away.