Can I reimburse myself for business expenses I paid for personally?

Freelancer’s Question:

A spring clean of my accounts has found two items of business expenditure which were paid by me personally.

The first is a subscription to a leading journal. Can an expert in freelancer expenses say definitely whether HMRC would be happy for me to pay this fee entirely from my business? The journal subscription is almost vital for me to keep up-to-date with and abreast of industry-goings-on which, in turn, improves the services/products I supply. Annoyingly, I’ve been paying this subscription personally for four months. How would I get the money back? Or should my clients pay the fee, as it’s them who ultimately benefits?

Similarly, my business has an email address and due to the address coming with internet storage, I pay for it. For 14 months, the fee has been coming out of my personal bank account. But again, it should be my business paying for it, right? Or is it just the tax I can claim back, and it’s not the case that my business ought to pay for the email service outright? Assuming my business should be paying for the mail account, how do I refund myself?

Expert’s Answer:

You do not say whether you are a sole trader or running your business through a limited company, so I will give you the answers to both, just to be on the safe side!

Business expenditure: in a nutshell

In general terms, your business can pay for whatever you choose it to pay for. What will cause issues, though, is if you use business-money either to pay directly for, or to reimburse yourself for, expenses that HMRC don’t allow you to use to reduce your tax bill.

If you do this, then if you’re a sole trader, you cannot use these costs to reduce the profit your business pays tax on. If you’re running a limited company and the business pays you back when you personally incur these costs, you will have to pay extra tax. And if you’re running a limited company and it pays directly for costs that HMRC don’t allow, those could be assessed as a taxable benefit for you, and you would have extra tax to pay!

No Hard-and-Fast Rules

I’ll now address the specific expenses you’ve asked about.

Firstly, the journal.

If you’re a sole trader, then sadly there are no hard-and-fast rules here. If you feel you can justify the cost of the ‘book’ to a visiting HMRC inspector (should HMRC ever investigate your own books), then you should be alright to include it as a cost in your accounts.

Limited ability to claim books if you're 'LTD'

If your business is a limited company, then HMRC says you can only claim the cost of books back from the company if they are to enable you to do your job. For example, if you’re a teacher and you buy textbooks to use in the classroom, then that would be fine. But books that allow you to keep up with developments in your field, you would not be allowed to claim back from the company. I would suspect (though there is no specific guidance available that I’m aware of), that HMRC would follow the same rules for ‘journals’ as for ‘books.’

In terms of your clients reimbursing you for the cost, that would be up to you and your clients to decide.

Pay the mail direct

Regarding the email address, I see no reason why you could not have your business pay for that direct -- or reimburse you without any extra tax being incurred. If you include it as a cost in your business’s accounts, it will reduce the amount of your business’s profit that it pays tax on. You can also have the business pay you back for the amount you paid personally for your business email address (assuming you only use it for your business and nothing else).

I would, though, recommend you discuss this in detail with your accountant to avoid any potential pitfalls. Good luck with avoiding them!

The expert was Emily Coltman, chief accountant at online accounting platform FreeAgent.