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Disallowable Expenses

How to account for disallowable expenses in your CT600

Disallowable Expenses

This article aims to answer some of the most common questions that somebody might have regarding the field of disallowable expenses for corporation tax, as it is important to understand the rules around them for Corporation Tax purposes to ensure an accurate CT600 return.

To begin with, every business must keep a record of their reports – Balance Sheet as well as Income Statement, in order to calculate the total amount of Corporation Tax liability due to be paid to the relevant authorities. The good news is that there are allowable expenses, which can be deducted from the taxable income, consequently reducing the amount of tax liability. Unfortunately, there are also disallowable expenses, also referred to as expenses to be added back, and they do not act as tax reducer. So, let's distinguish between these two kinds of expenses.

Which expenses are allowable

Expenses which incurred “wholly and exclusively” for the purposes of running the business are allowable for tax purposes, meaning that those costs must be incurred while performing the business. Also called business expenses, they are ‘allowable’ because the tax rules allow these particular costs to be deducted from trading income when calculating the business’ profits – on which Corporation tax has to be paid.

Which expenses are treated as disallowable

A disallowed expense is an expense that is not deducted from a company’s profits, hence it will not reduce the amount of tax due, compared to the allowable expenses. Therefore, disallowed expenses are not incurred wholly and exclusively for the purpose of trade.

The most common disallowed expenses are:
  • Depreciation and amortization
  • Client entertainment, also staff entertainment that is not 100% related to business purposes.
  • Fines and penalties
  • General provisions for bad debts
  • Clothing, however, if it is wholly, exclusively and necessary for the performance of your work, for example – a uniform, protective clothing, costumes (for actors or entertainers) then it is allowable.
  • Legal expenses on the formation of a company
  • Legal expenses related to buying premises or equipment
  • Fuel expenses for non-business use of vehicles
  • Travel between your home and work
  • Payments to political parties
  • Most donations and fees made to clubs, charities, GAD

Which expenses are treated as disallowable

Although it might seem complicated, in Easy Digital Filing we have simplified the process of adding disallowable expenses. In the CT600 return there is a clearly defined section for disallowable expenses. Find below guidance to assist you through the process.

Firstly, you should keep a note of all your expenses – what they are and also their cost

Secondly, make a CT600 return and include all your disallowable expenses in your operating costs

Then, when your accounting period has finished and you are ready to file, you can simply create and open your CT600 Filing and then set the section in box 100 ‘Disallowable expenses’ to ‘yes’. Once you have done this, the supplementary section will be visible in the section navigator.

Disallowable Expenses Section CT600

From this point you can enter all your disallowable costs, from this figure Easydigitalfiling software will add them back to your taxable profits.

Disallowable Expenses Section CT600

This article is information only and has been prepared for general guidance on matters of interest only, and does not constitute legal, accounting, tax, investment or other professional advice or services. You should not act upon the information contained in this article without obtaining specific professional or legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this article, and, to the extent permitted by law, Comdal Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.