It is important for any director to understand the wider implications of insolvency - including he effect on company expenses. Our superb team can help.
As a company director, or a shareholder, or both, it is usual to take money from the company by way of payment for expenses.
Certain expenses incurred in a limited company are allowable, and can be applied against tax. Claiming business expenses legitimately is a good way of keeping your business tax efficient because it reduces your profit, which in turn reduces your corporation tax payments.
Expenses however must be “wholly, exclusively and necessary” for the business to be legitimately applied against tax.
Examples of allowable business expenses are:-
- formation costs of forming your limited company.
- salaries and other staff costs.
- costs of company premises, including utility bills and rent.
- stationery and other office costs such as furniture, laptops, phone bills etc.
- legal and financial costs such as your accountancy and legal fees.
- stock and raw material costs.
- marketing or advertising costs.
There are other capital allowances which you can claim against your tax return, such as if you purchase a work van for example for use by the business.
Employees may also incur expenses as long as they provide receipts, so that these can be included in company tax returns. It is advisable to make sure that all employees are aware of the company’s expenses policy, so that they are clear on what expenses they are authorised to incur on behalf of the company.
At the end of every tax year expenses must be declared in order to obtain the tax benefits. We recommend that you take advice of an accountant to check that you are correctly submitting business expenses in order to reduce your corporation tax liability effectively.
What happens to expenses on insolvency?
It is vitally important that all expenses taken by the directors are fully accounted for in the company accounts, together with receipts and details of what the expense covered.
If drawings are taken from the company by a director as an expense, and there isn’t sufficient documentation to explain that this was a legitimate business expense, then it is possible that a later administrator or liquidator will bring a claim against that director for unauthorised drawings or overdrawn director’s loan account in order to recoup these monies for the benefit of the creditors as a whole.
At Francis Wilks & Jones we frequently advise directors and shareholders of companies that are either insolvent or heading for insolvency and are concerned about their personal position. We also advise businesses on their duties in order to avoid later repercussions against the company or against directors personally. If you would like further information or advice on any of these areas, contact our friendly team of experts today.