For the majority of us, keeping a record of business transactions involves a drawer filled with receipts. This works well until you can’t find the one receipt you are searching for, or you didn’t receive a receipt for a particular transaction. If this happens, you do not need to panic. It may still be possible to claim expenses without any receipts.
What Is A Business Expense?
Regardless of whether you are a limited company or a sole trader, it is likely that the business will have many different running costs. From travel costs and office rental to staff salaries, there is a range of company expenses which you can claim back against your tax at the end of the year. This is an essential aspect to running a successful business because claiming expenses will assist you in keeping the taxable profits as low as possible.
To assist you in keeping your companies expenses in order, we have information on six separate types of business expenses that you can claim without invoices or receipts.
1. You Have Not Received A Receipt
There will be situations when you will purchase something for the company and will not receive any formal documentation for the exchange. For instance, if you were to purchase a used computer screen using Gumtree or Facebook Marketplace, it is likely that you will pay cash-in-hand. As such, you will not have any documentation of the transaction on your bank statement. Furthermore, you will not have any receipt from the seller.
To claim the transaction as a business expense, it is essential that you keep a thorough record of expenses with information about the transaction, including who you bought items from and how much it cost. Attempt to send as much detail as possible. Remember, to claim back a full amount, the item needs to have been purchased for the purpose of the company exclusively.
Top tip: if you have not kept a record of transactions (which we suggest you do), you can reasonably estimate the costs, as long as you indicate your workings and have physical evidence of the item stated.
2. VAT Claimed On Items Under ’25
Companies that are registered for VAT can claim back on the majority of their purchases, but there are certain exceptions. This means that when you are paying your VAT bill, you can deduct some VAT already paid on the purchases from the VAT amount owed.
In the majority of cases, deduction of VAT requires a VAT-specific receipt or invoice which must be requested in addition to the traditional till receipt. However, if the item purchased is below ’25, you can claim the VAT back without any need for documentation. The following are examples:
- Telephone calls from private or public telephones
- Car parking, excluding the use of an on-street parking meter as this is outside the scope of VAT
- Road Tolls
- Purchases from coin-operated machines, such as vending machines when on a trip
Top tip: it is highly recommended that you keep a record of all cases where you will need to claim VAT without receipts. Be sure to include the purchased item with the date of purchase, the location, and the exact amount of the purchase.
3. Using Bank Statements In The Place Of Receipts
If you are not claiming back VAT and have lost the receipt, you could still be able to claim the amount. In this case, the bank statement can serve as evidence of purchase, as long as you paid with a company card.
This should not be something you rely on constantly. It is good practice to maintain receipt records which can be reconciled with the bank states. This will ensure that you are fully covered if the HMRC chooses to investigate your company.
Top tip: you cannot utilize this method as a means of claiming back VAT. For all purchases exceeding ’25, you need to have a specific invoice or VAT receipt to claim. If you want some more information on how the pros do it, then check out VAT IT
4. Mileage-Based On A Flat Rate Instead Of Actual Costs
If you are a sole trader or are operating as a partnership, you may not need to keep receipts for business travel costs or vehicle expenses. Instead, you can calculate the expenses by utilizing a flat rate for mileage. This may not be the most cost-effective strategy, so it is vital that you do research before making any claim.
For any good vehicle and car, you will pay approximately 45p per mile for 10,000 miles with 25p per mile after this. A motorcyclist will pay a flat rate of 24p per mile irrespective of the distance traveled. For instance, if you use a motorcycle to travel to work – perhaps you are a courier – and you travel 19,000 miles during the year, you can determine your expenses using this simplified calculation:
24p per mile x 19,000 miles = ‘4,560
According to the calculation, your overall travel expenses will be ‘4,560.
However, if you used an automobile to cover the same distance, the simple calculation would be as follows:
45p per mile x 10,000 miles = ‘4,500
25p per mile x 9,000 miles = ‘2,250
‘4,500 ‘2,250 = ‘6,750
There, based on the calculation, the overall travel expenses would be ‘6,750.
Top tip: if you are working as a partnership or sole trader, you can utilize the government’s simplified expenses checker to compare the amount you can claim using simplified expenses as compared to what you can claim if you calculated the actual costs.
5. Working From Home Company Expenses
If you are a self-employed individual and work from home for more than 25 hours per week, you can calculate a flat rate according to the hours worked. This means you do not need to waste time searching through your itemized bills to determine the percentage of company use.
If you operate at home between 25 and 50 hours each month, you can claim a flat rate of ’10 each month. Partnerships and sole traders working at home claim ’18 per month if they work between 51 and 100 hours monthly. If the worker works in excess of 100 hours per month, they can claim ’26 per month.
If you typically work using a co-working space but spend two months working from home at approximately 100 hours per month, as well as three months working from home where you work 30 hours per month, then you can determine the expenses using this calculation:
2 months x ’26 = ’52
3 months x ’10 = ’30
’52 ’30 = ’82
The overall company expenses when working from home are ’82.
Top tip: this flat rate does not include any internet or telephone costs. You can claim the company proportion of these expenses by calculating the actual costs.
6. Residing At The Company Premises
Some types of smaller company premises will double as a company owner’s home. For example, a home-based childcare center, home-based craft business, small care homes, bed and breakfast, and many more. If this is your situation, simplified costs can be utilized to identify a flat rate of costs according to the number of people residing on the premises.
In this situation, the flat rate is deducted from the amount you claim in expenses. So, if it is only you residing at the premises, you will need to remove ‘350 each month from the allowable expenses. If two staff members reside on the premises, then ‘500 must be deducted each month, and for three or more the amount is ‘600.
When you have determined the flat rate of costs according to residing on the premises, then you must subtract the amount from the overall running expenses. For example, let’s say you run a guest house from your residence. You live at the guest house for the first six months of each year, but your mother joins you for the remainder of the year. The annual cost to run the business is ‘30,000. To determine the flat rate you will need to deduct the following expenses:
‘350 x 6 = ‘2,100
‘500 x 6 = ‘3,000
‘3,000 ‘2,100 = ‘5,100
The overall amount to deduct from costs is ‘5,100. You can claim ‘24,900 by deduction ‘5,100 from $30,000.
Top tip: if a person resides at the company’s premises for some part of the year, you only need to remove the relevant flat rate based on the months they reside at the house.