Categorising expenses correctly is essential to give you an accurate view of:
- the financial health of your business, so you can make the best decisions
- your tax bill, so you don’t overpay or underpay
Keeping your expenses in the correct categories within the Countingup app also makes your financial reports and tax estimates more accurate.
In the app, you will need to use the category types ‘Expense’ or ‘Other’ in the category picker for your expenses.
Expenses not eligible for tax relief
There are some expenses that HMRC does not consider eligible for tax relief. An example is expenses related to entertaining clients.
In the Countingup app, you can easily identify your expenses that are not eligible for tax relief by looking at the ‘Total expenses’ section in the Profit and loss report.
You can also see which expense categories are not eligible for tax relief in the category explanations available in the category picker. Tap the ‘i’ icon next to a category and we’ll tell you if it’s not eligible for tax relief.
It’s important you know what expenses are eligible for tax relief so you categorise correctly and keep accurate records. The government website has a complete list of what you can claim as a business expense here for self-employed and a more generic approach for limited companies here.
You can find more on how to categorise transactions with the Countingup app here.
Expenses not related to your business
If you pay for something personal through your business account by mistake, you’ll need to correct this in one of two ways:
- Transfer the cost of the expense from your personal funds to the business account. If you have a limited company, categorise both payments in and out to ‘Director loan account’. If you are a sole trader, categorise both payments in and out to ‘Pay me’.
- Check with your accountant if you are able to deduct the cost from any amounts the business can pay you, such as a salary, dividend or payment from equity.
Limited companies can make employer pension contributions directly from the business account, and should use the category Pension payments.
If you are a sole trader you cannot deduct your own pension contributions as an expense of the business. You pay your contributions from the funds you extract from the business. You pay these on a 'personal', not 'business' basis. If you mistakenly pay pension contributions from your business account you should follow the steps above.