A-Z of tax deductible expenses for chiropractors
“What expenses can I claim for tax relief?”
Whether your business trades as a limited company, partnership or as self-employed, when preparing financial accounts and tax returns, you need to consider which expenses can be claimed against your business income. In basic terms, an expense will be categorised as either “allowable” or “non allowable” for tax purposes.
There is an underlying rule set by the Inland Revenue that an expense will be allowable for tax relief if it is “wholly and exclusively used for business purposes”. As you read through the list of expenses, please remember this rule when considering if it is “allowable” or “non allowable” expenditure in your circumstance.
Linked to this principle is the “duality concept”, where by if an expense is partly used for business and partly for personal use, it will most likely be disallowable. There are however, some exceptions to the rule, some of which are detailed below and others your accountant can explain in more detail – for a specialist accountancy service for chiropractors, please click here for more details.
Business advertising is allowable for tax relief.
Bank charges incurred in your business bank are allowable for tax relief although any costs relating to late penalties are disallowable.
Bank interest incurred in your business bank is allowable for tax relief if it is funding the business and not personal drawings. Therefore, if the “business capital account” is overdrawn, a proportion of the interest may be disallowable.
Books your purchase to use in your trade can be allowable. If you have say, a library of reference books you use, perhaps to look up methods, a case study etc, these books are a legitimate business expense.
If you are a clinic owner, the business rates paid each month to the council are allowable for tax relief. If the property has residential rooms, these should be under a separate policy or proportioned accordingly.
The costs of cleaning in the clinic are allowable, including purchasing cleaning products.
If you are an associate chiropractor you will more than likely pay a percentage of your business income to the clinic owner. Clinic rent is what is known as a “Cost of Sale” (a cost necessary to generate income). This is allowable for tax relief.
If you are an associate that receives income after the clinic rent has been deducted (so the clinic owner takes all income) then it is better to declare the income as it is received. For example, if you earn £1000 and the rent is £600, then the net income will be £400, which is what you can then record as income.
To enhance your self-employed status, it is preferable to take your own money and make a payment for the rent back to the clinic owner, in which case you would declare the income as £1000 and the rent (as a deductible expense), at £600.
If you own a chiropractic clinic, there will be items such as magazines for the waiting room, staff and patient welfare (tea, coffee, water dispenser, toilet roll), plants and flowers for the clinic etc that are allowable for tax relief.
Clinic / medical supplies
Chiropractic clinic supplies are generally medical purchases used for the treatment of patients and / or items for resale. These are also considered to be “Cost of Sale” items and includes expenses such as head rolls, vitamins and minerals, creams and gels, heel supports etc. These are allowable for tax relief.
Clinic jackets worn as a chiropractor are the only clothing items that are allowable for tax relief as they are considered “wholly and exclusively” for business use. Other items of clothing could be worn outside of work and therefore hold a personal element, which results in them being disallowable.
Staff entertainment is the only type of entertainment that is allowable for tax purposes and there are limits as to how much can be claimed per employee and certain rules that have to apply. This allowance usually applies to staff Christmas parties and other similar events throughout the year.
Business meetings with colleagues are not generally allowable. However, if business lunches are held on employers premises and are available to all staff, then this expense would be allowable.
Internet costs are often partly business and partly personal as you will pay 1 monthly payment for your internet and use it for some personal and some business use. If you are not trading as a limited company, at the end of the year, your accountant will need to apply a business percentage to the total cost in the year to see how much is allowable for tax relief. If the internet is in the clinic and therefore 100% for business, then the whole cost will be allowable. If your business trades as a limited company, the whole internet costs can be claimed by the company however, “benefits in kind” (**) will be charged to the employee on any personal use.
Hire purchase interest
When paying monthly hire purchase, the full instalment will not be offset against business profits for tax relief in the year. Only the interest proportion gets this treatment and the rest of the instalment is dealt with in a different way. (*)
If the item purchased (using the hire purchase credit) is used purely for business use, then the whole amount of the interest will be allowable for tax relief. If your business is not incorporated and there is a personal element to the item bought, then the interest will be split accordingly between allowable and non-allowable expenditure. If your business is incorporated then the company can claim for the full cost but there could be a “benefit in kind” charge issued (**)
In summary, the business proportion of the hire purchase interest will be allowable for tax relief.
Light and heat
If you own a chiropractic clinic, the costs related to lighting and heating the clinic are allowable for tax relief. Examples of light and heat expenses are electric, gas and oil.
The treatment of loan interest is similar to hire purchase interest.
When paying monthly loan payments, the full instalment will not be offset against business profits for tax relief in the year. Only the interest proportion gets this treatment and the rest of the instalment is dealt with in a different way. (*)
If the item purchased (using loan funds) is used purely for business use, then the whole amount of the interest will be allowable for tax relief. However, if there is any personal element to the item bought, then the interest will be split accordingly between allowable and non-allowable expenditure.
In summary, the business proportion of the loan interest will be allowable for tax relief.
Mortgage interest on a business property is an allowable expense.
When paying monthly mortgage payments, the full instalment will not be offset against business profits for tax relief in the year. Only the interest proportion gets this treatment and the rest of the instalment is dealt with in a different way. (*)
If the property is used purely for business use, then the whole amount of the interest will be allowable for tax relief. However, if there is any personal element, then the interest will be split accordingly between allowable and non-allowable expenditure. This does not relate directly to your personal home – see Use of Home section for further information.
There are numerous guidelines set by the Inland Revenue about what can and can’t be claimed for tax relief regarding motor expenses. The rules also vary according to whether you trade as a sole trader, partnership or limited company.
The fundamental things to remember for chiropractors when considering motor expenses is as follows:
- Between clinics is ALLOWABLE
- From home to work and vice versa is DISALLOWABLE
- Seminars and other trips wholly and exclusively for business purposes are ALLOWABLE
The most common method by far is to include the business mileage applying a pence per mile as set out each year by the Inland Revenue (13/14 = 45p 10,000 miles, 25p thereafter). Your accountant will need to decide which is the best method for you whilst working within the Inland Revenue guidelines.
Postage used for business purposes is allowable for tax relief.
Printing costs related to business are allowable for tax relief. Examples of relevant costs are business cards, letterheads and printing for adverts.
If you are a chiropractic clinic owner and do repairs to your clinic these are considered allowable costs. Please be aware though that there are numerous guidelines set by the Inland Revenue as to whether certain expenses are repairs or property improvements. If you are unsure before planning to do some work to your clinic, contact your accountant to find out the tax treatment of the specific work you plan to carry out.
Whether you are a clinic owner or associate, minor repairs to business equipment and sundry repair items used for business such as batteries and light bulbs are allowable for tax relief.
The costs of attending a chiropractic seminar are allowable for tax relief. This includes the registration cost of the seminar as well as any other costs that are directly linked to attending the seminar. This includes travel, accommodation and subsistence.
Please be aware that if combining a seminar trip with a personal excursion (i.e. holiday) then it is likely that the flight / accommodation costs will be disallowed under the “duality” principle.
Stationary used for business purposes is allowable for tax relief. This would include items such as paper, pens, printer ink, folders and other consumable items. Please note that printers and computers and not consumable items and therefore do not fall under this category and are treated in a different way for tax purposes. (*)
Chiropractic subscriptions are allowable for tax relief. The GCC, BCA, UCA, SCA and College of Chiropractors, being the most recognised.
Other subscriptions would be allowable as well if they are solely used for business purposes.
Please also note that student loan costs are not allowable under subscriptions.
Telephone costs are another expense that often needs to have split treatment. If the telephone is within the clinic then usually these costs are 100% business related. Home telephone costs are usually considered 100% personal, so non-allowable, although if business calls are seperately identifiable these will be allowed for tax relief.
For many chiropractors, mobile phone costs are often a combination of business and personal calls so therefore a percentage needs to be applied at the end of the year to ensure that tax relief is only claimed on the business proportion. If you trade as a limited company and register the mobile in the company name, then the full mobile expenses are allowable and there is no “benefit in kind” (**) for the employee!
Your accountant will ask you to indicate a reasonable percentage for business: personal use to make an adjustment to your tax return. It is therefore a good idea to keep the itemised section of your phone bills so that they can be reviewed if necessary.
Travel expenses that are incurred solely for business purposes are allowable for tax relief. This would include travel to chiropractic seminars (as mentioned under seminars) and travel in-between clinics. Similar to the treatment of motor expenses, travel to and from work in not allowable.
Use of home office
If you work from home, perhaps writing up chiropractic patient notes and do not have an office space within your clinic then you may be able to claim a proportion of your house expenses for business use under the heading “use of home as office”.
If your business is un-incorporated, the items that can be considered are light and heat, mortgage interest or rent and insurance and the proportion would be based on the floor space of the office in comparison to the rest of the house and the proportion as to how much the office is used for business and personal use.
If your business is incorporated, the company can pay the employee £3 per week tax free, subject to certain conditions.
Your accountant will advise you as to whether this exercise is necessary and worthwhile after considering your individual circumstance (often tax relief is not worth the time administrating it).
Wages and salaries
Wages and employers national insurance are considered tax deductible expenses when directly related to work carried out in your chiropractic business.
Clinic water rates are allowable for tax relief.
* The interest proportion is allowable for tax whereas the rest of the payment is offset against the creditor, being the capital amount borrowed. For example, if you purchase some equipment using finance, the tax relief will be gained from the asset (see below *** capital allowances) and not on the monthly installments. Therefore, the repayment of the loan capital is just offset against the initial debt until this has been cleared.
** Benefits in kind are tax charges where an employee receives a benefit from a company such as use of a telephone, use of a car etc. As this is treated like additional income, the Inland Revenue levy a tax charge called a “benefit in kind”
*** When purchasing or introducing a car to your business, rather than the whole cost being offset against your income, the tax relief is gained through a “capital allowance”. For more information on capital allowances, see your accountant.