Reduce Expense Bill - "Remove Disallowed Expenses"

Reduce expenses

It seems to me that by far and away the most complex change to the profit calculation is the need to remove some costs from the calculation. In doing so, the profit figure will rise and hence tax payable increase. Reg would call these removable costs “disallowed expenses”.

In our corporation tax model we have separated out dividends. These are the easiest removable expense to understand. Obviously, HMRC cannot let us pay a dividend and reduce our corporation tax bill. Therefore, for the purposes of corporation tax, the cost of dividends is removed from expenses, which “increases” profit and hence increases the corporation tax due.

There may be a cost for depreciation, which is taking account of the cost of the purchase of assets used to run the business and produce goods and services. These are covered by the “capital allowances” part of the model. At this stage, if there is a line called “depreciation” then that is a removed.

Other examples of removable expense are:

  • Personal costs of owners on items such as life insurance, private use of business cars etc
  • Provisions for bad debts
  • Entertainment expenses and gifts


The full list is horrific, have a look at http://www.hmrc.gov.uk/manuals/bimmanual/BIM40000.htm