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Interaction between expenses and other taxes

Expenses can affect a range of taxes including corporate tax, business income tax and VAT. As HMRC is likely to review expenses for multiple taxes, it is useful to highlight the main issues where other taxes may interact with employment-related expenses.

Expenses and corporate / business tax

The general rule for a business to make a deduction for tax (be that corporate or business income tax) requires four criteria to be met. The expense must be:

1. •

   incurred

2. •

   incurred for the purposes of the trade

3. •

   wholly and exclusively incurred

4. •

   revenue and not capital in nature

For a detailed consideration of these rules, refer to the Adjustment of profits ― overview guidance note.