Taxable profits: Profits on which tax is calculated. Taxable profits may differ from the profits shown in the accounts.
Allowable expense: This expense can be included in calculating taxable profits
Disallowable expense: This expense has to be added back to profits to calculate the tax due.
If you are planning to entertain any clients (existing or potential), remember that the costs will be not be an allowable expense in calculating your taxable profits.
After deducting all of his business costs, Tom made a profit of £10,000 in the 2014-2015 tax year. The business costs included £300 spent entertaining potential clients. Business entertaining costs are a disallowable expense. So Tom will have to add back £300, so his taxable profits is now £10,300.
The costs of providing business gifts are an allowable expense if the following conditions are met:
- The gift displays the business name or logo or the gift is a form of advertisement
- The gift is not tobacco, food or drink
- Over the period, gifts costing less than £50 were gifted to each person.
Note that trade samples are an allowable expense.
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