As business accountants this is a question that pops up all the time.
In this blog, we debunk some business expenses myths and give you some practical advice on making sure you don’t miss out on a tax deduction.
Let’s start with the myth!
The one that does the rounds says you cannot pay for business expenses in cash.
Let’s be clear: you can definitely spend your cash on business expenses. Presuming that it’s a qualifying expense, you can get a tax deduction for it.
Paying in cash is quite common in businesses that receive a lot of cash, such as car washes, barbers and the like. What’s more, in a business bank account, it actually costs you money to put that cash in the bank. So why would you not pass the cash on to someone else!
So where is this cash payment myth coming from?
Whilst the origins of this myth are lost in time, our feeling is it could likely be in part due to accountants and book-keepers!
Generally, cash expenses are a pain because:
- They are a key area where business owners fall down on their record keeping.
- As a result, cash expenses are often an area that HM Revenue & Customs challenge in an investigation.
- It is a difficult account to ‘balance’ in the books.
Here’s an example. In a set of book-keeping records, it’s common to find that in theory there was no cash in the business to pay for a list of cash expenses. This will prompt questions or adjustments. In most scenarios it’s actually because the owner put their hand in their pocket and paid for it personally, but the records aren’t clear!
Can I pay for expenses in cash even with a limited company?
Another popular myth with the same answer as above – yes, you can.
Can I claim expenses if I don’t have the receipt?
This is a big one. The answer is yes BUT only if you have good records.
Sometimes you just won’t get a receipt. For example, if you trade in second-hand goods and buy from a car boot, you usually won’t be able to get a receipt.
In this instance, you should keep the best records you can to prove in any investigation that these were business expenses suitable for a tax deduction.
For example, if you are buying on Facebook marketplace, take screenshots of
- The original listing
- The conversation showing what you bought and how much
- File them in your accounting software (if you can)
The more evidence you can retain, the better.
If you bought at a car boot, you could compile (for example):
- A detailed list of products bought (with images if you are really keen)
- Dates of the car boot sales and proof of attendance
Cash for business expenses summary and tips!
- It’s possible to buy goods in cash for your business. In fact, it’s often it’s a good idea to save on bank charges, or a trip to the bank (if you have a local branch still open.)
- Keeping good records detailing your expenses is key and you may want to consider some receipt capture/app technology for your phone to help you do this.
- For complete clarity, you should aim to have a receipt for every purchase as best practice! Doing your book-keeping in small manageable chunks makes life easier in this respect too.
Bored with book-keeping or confused by cash accounting?
Ask your accountant for help. If you don’t have an accountant, or feel you aren’t making the most of business tax benefits with your current accountant, we’d love a chat about how we can help.