How Do You Claim Utility Bills as Business Expenses?

How to claim utility bills for business expenses? As a business owner, you’re likely no stranger to the expenses of running a company. It can be overwhelming to keep track of everything from rent and equipment to supplies and staff salaries.

But how do you do it? What are the rules and guidelines? In this discussion, we’ll take you through the step-by-step process of claiming utility bills as business expenses in the UK, so you can maximise your tax relief. So, let’s dive in.

How Do You Claim Utility Bills as Business Expenses?

Claiming utility bills as business expenses in the UK can seem daunting, but it’s straightforward.

Step 1: Identify Eligible Utility Bills

Determine which utility bills are eligible for business expense claims, like electricity, gas, water, internet, and telephone bills.

Step 2: Calculate the Business Use Percentage

Calculate the business use percentage of each utility bill, using methods like measuring workspace or tracking usage.

Step 3: Gather Supporting Documentation

Collect supporting documentation, including utility bills, receipts, invoices, and bank statements.

Step 4: Claim Expenses on Tax Return

Claim business expenses on your tax return, using the correct categories and percentages.

Sole Traders: Claiming on Self-Assessment

  1. Claim business expenses on the Self-employment section of your tax return.
  2. Enter the total business expense amount and percentage.

Limited Companies: Claiming on Company Tax Return

  1. Claim business expenses on the Company Tax Return.
  2. Enter the total business expense amount and percentage.

Common Mistakes to Avoid

  1. Claiming personal use as business expenses.
  2. Failing to keep accurate records.
  3. Not calculating business use percentage correctly.

Who Can Claim Utility Bills as Business Expenses?

Sole Traders and Freelancers can claim utility bills as business expenses if they use a dedicated space for work. Like a home office or studio. Limited Companies can also claim utility bills as business expenses, but the company must be the named account holder for the utility bills. Business Use Percentage is a crucial factor in determining eligibility.

Additional Eligibility Criteria include:

  1. The utility bill must be in the name of the business or the sole trader
  2. The business must be registered with HMRC
  3. The utility bill must be paid by the business or the sole trader

Understanding the Concept of Business Use Percentage

When claiming utility bills as business expenses in the UK, it’s essential to understand the business use percentage concept. What is the Business Use Percentage?

It’s the proportion of your utility bill that relates to business use, rather than personal use. This percentage determines how much of your utility bill you can claim as a business expense.

How to Calculate Business Use Percentage:

  1. Measure Your Workspace: Measure the square footage of your dedicated workspace and divide it by the total square footage of your property.
  2. Track Your Usage: Keep a log or use a smart meter to track your utility usage during business hours versus personal hours.
  3. Estimate Your Usage: Make an estimated calculation based on your business hours and usage patterns.

Examples of Business Use Percentage:

  1. If you work from home and use 20% of your electricity for business purposes, your business use percentage is 20%.
  2. If you have a dedicated home office that occupies 10% of your property’s square footage, your business use percentage might be 10%.

Importance of Accurate Calculation:

  1. Accurate calculation ensures you claim the correct amount of business expenses.
  2. Inaccurate calculations can lead to HMRC inquiries or even penalties.

Best Practices:

  1. Keep detailed records of your calculations and supporting documentation.
  2. Review and update your business use percentage regularly to reflect changes in your business or workspace.

Record Keeping and Documentation

When claiming utility bills as business expenses in the UK, maintaining accurate and detailed records is crucial. Why is Record Keeping Important? It provides evidence to support your business expense claims, ensuring you can claim the correct amount and avoid HMRC inquiries or penalties.

What Records Should You Keep?

  1. Utility Bills: Keep copies of all utility bills, including invoices, receipts, and payment confirmations.
  2. Business Use Calculations: Document your business use percentage calculations, including measurements, logs, and estimates.
  3. Receipts and Invoices: Keep receipts and invoices for any business-related expenses, including equipment, supplies, and maintenance.
  4. Bank Statements: Keep bank statements showing business-related transactions.

How to Keep Records

  1. Digital Records: Scan and save digital copies of records, or use cloud-based accounting software.
  2. Physical Records: Store physical records in a secure, organized manner, such as files or binders.
  3. Regular Updates: Regularly review and update records to ensure accuracy and completeness.

Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!

The Bottom Line

This concludes our comprehensive guide on how to claim utility bills as business expenses in the UK. We’ve covered the essential steps, from understanding eligibility criteria to navigating HMRC rules and guidelines.

Remember to stay organised, keep accurate records, and seek professional advice if needed. Don’t let utility bills eat into your profits claim them as business expenses and take control of your finances.

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