Common Allowable Expenses
Allowable expenses are standard operational costs subtracted from business revenues to lower taxable income. These include:
- Core Operational Expenses: Raw material purchases, staff salaries, rent for business premises, office utilities, and marketing costs.
- Bad and Doubtful Debts: Specific bad debts that have been proven uncollectible and explicitly written off during the tax year. General provisions for doubtful debts are disallowable.
- Repairs and Maintenance: Routine expenditures incurred to maintain business assets in their normal operating condition without extending their original useful life.
Common Disallowable Expenses
Disallowable expenses are items that must be added back to accounting net profit because they are prohibited by tax law:
- Capital Expenditures: The cost of purchasing land, constructing buildings, or acquiring machinery. These are recovered through capital allowances rather than direct expense deductions.
- Depreciation and Amortization: Accounting estimates for asset wear-and-tear are disallowable because methods vary between companies. They are replaced by statutory capital allowance rates.
- Penalties, Fines, and Legal Infractions: Monetary fines imposed by government regulatory bodies or courts (e.g., traffic fines or late tax payment penalties) cannot be used to lower tax liabilities.
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