The Account Nobody Looks At
Every set of books has one. In Sage it is nominal code 8250, Sundry Expenses. In Xero it is usually General Expenses. In QuickBooks it tends to be Other Business Expenses. Whatever the label, it is the account where costs go when the person doing the bookkeeping is not sure, is in a hurry, or would rather not think about it.
We took on a joinery company last year with a turnover of about £620,000 and sundry expenses of £9,400. That is 1.5% of turnover, which does not sound like much. When we went through it line by line, less than £1,500 of it was genuinely sundry. The rest included client entertaining, parking fines, a staff party, a director's gym membership and a year's worth of software subscriptions. Three of those are not tax deductible, one of them should have been reported as a benefit, and the company had reclaimed VAT on two of them that it was not entitled to. The accounts had been filed and the tax paid on the wrong figures.
That is why this guide exists. Sundry expenses are a real and legitimate category. They are also the single most abused account in small company bookkeeping, and the cost of the abuse shows up in your tax bill.
What Are Sundry Expenses?
Sundry expenses are small, irregular costs of running a business that do not fit any of the usual expense categories and are not worth a category of their own. The word sundry simply means various or miscellaneous. You will also see them called sundries, miscellaneous expenses or general expenses. They all mean the same thing.
Three tests, taken together, tell you whether a cost is genuinely sundry:
- It is small. A few pounds, or a few tens of pounds. Not hundreds.
- It is infrequent. It happens once, or a handful of times a year, with no pattern.
- It has no natural home. There is no existing account in your chart of accounts that describes it, and it would be silly to create one.
A cost has to pass all three. A £15 cost that happens every month is not sundry, because it is regular and deserves its own line. A £400 cost that happens once is not sundry either, because it is large enough that someone reading the accounts will want to know what it was. The sundry account is for the genuine odds and ends, nothing more.
Sundry Expenses Examples
Here is what we would happily see in a sundry expenses account, and what we would move out.
| Genuinely sundry | Looks sundry but is not | Where it should go instead |
|---|---|---|
| A one-off £12 key cutting charge | Monthly software subscriptions | Software or IT costs |
| A £6 bunch of flowers for the reception desk | Lunch with a customer | Client entertaining (disallowable) |
| A small donation to a customer's charity run | The staff Christmas party | Staff entertaining or staff welfare |
| A £20 wreath when a supplier's director died | Parking fines and penalty charge notices | Fines and penalties (disallowable) |
| A replacement kettle for the kitchen | A director's personal gym membership | Director's loan account or a benefit in kind |
| A £3 fee to replace a lost security pass | Drill bits, blades and fixings bought weekly | Consumables or small tools |
| Postage for a one-off parcel when you never normally post anything | Bank charges | Bank charges |
| A petty cash shortage of a few pounds | Accountancy fees | Professional fees |
The right hand column is where the trouble lives. Each of those costs is either regular, material, or treated differently for tax, and burying it in sundries hides that from whoever prepares the tax return.
Where Do Sundry Expenses Go in the Accounts?
Sundry expenses are an expense, so they sit in the profit and loss account, not the balance sheet. They are part of overheads, which the Companies Act format calls administrative expenses. They reduce profit in the year they are incurred like any other operating cost.
A surprising number of people search for how sundry expenses are treated on the balance sheet. The short answer is that they are not. An expense that has been paid is gone. The only time a sundry item touches the balance sheet is when it has been incurred but not yet paid at the year end, in which case the unpaid amount sits in accruals under current liabilities, and our guide to accruals and prepayments explains that adjustment.
In the published accounts of a small company you will never see the word sundry. Companies filing micro-entity accounts or filleted small company accounts do not file a profit and loss account at all, and even when a full profit and loss account is prepared, sundries are rolled up into administrative expenses. The sundry account exists in your bookkeeping software for your benefit and your accountant's, not for Companies House.
Sundry Debtors, Sundry Creditors and Sundry Income
The same word turns up in three other places, and they are worth separating.
Sundry debtors are people who owe the business money for something other than normal sales. A rent deposit held by your landlord, a loan to an employee, an insurance claim awaiting payment or a refund due from a supplier are all sundry debtors. In UK accounts they usually appear under other debtors within current assets. They are different from trade receivables, which are customer invoices.
Sundry creditors are the mirror image: amounts the business owes for something other than normal purchases. A deposit a customer has paid you, a refund you owe, or an amount due to a former employee. They sit under other creditors in current liabilities, separate from trade payables.
Sundry income is small, irregular money coming in that is not sales. Bank interest of a few pounds, a small insurance payout, the sale of scrap, a supplier rebate. It belongs in other operating income, not in turnover, because mixing it into sales inflates your revenue and distorts your gross margin. It is still taxable.
Are Sundry Expenses Tax Deductible?
There is no sundry rule in UK tax law. HMRC does not care what account you put a cost in. It cares whether each cost passes the test for a deduction, and the sundry label gives you no protection if it does not.
For a sole trader or partnership, the test is that the expense was incurred wholly and exclusively for the purposes of the trade. For a limited company, the rule is the same in substance. A genuinely sundry cost, such as the replacement kettle or the key cutting, passes easily. The problem is the costs that get parked in sundries precisely because someone did not want to think about whether they passed.
The ones that come up again and again are:
- Client entertaining. Taking a customer to lunch, drinks with a prospect, hospitality at an event. Not deductible for income tax or corporation tax, however good for business it was, and you cannot reclaim the VAT either.
- Fines and penalties. Parking fines, speeding fines, late filing penalties from Companies House or HMRC. Not deductible, because they are a punishment for breaking the law rather than a cost of trading. This applies even when the van was parked on a job.
- Personal costs. A gym membership, a personal phone, a family meal. Not deductible, and for a director they either need to be charged to the director's loan account or reported as a benefit on a P11D.
- Staff entertaining. Deductible for the business, but potentially taxable on the employees unless it falls within the annual party exemption, which currently allows £150 per head per year across all qualifying events, or the trivial benefits rules for gifts under £50.
When sundry expenses are reported to HMRC, they go in the "other allowable business expenses" box on the self-employment pages of the self assessment return, or into administrative expenses in a company's tax computation. Either way, the figure should be the genuinely allowable sundries after the items above have been stripped out and dealt with properly. Our guide to self-employed allowable expenses covers the wider rules.
VAT on Sundry Expenses
Most sundry costs are small and paid for with a card or from petty cash, so the paperwork is usually a till receipt rather than a proper invoice. That matters for VAT.
To reclaim input VAT you need a VAT invoice. For purchases of £250 or less including VAT, HMRC accepts a simplified invoice, which is what most till receipts are, provided it shows the supplier's name, address and VAT number, the date, a description of the goods, the VAT rate and the total including VAT. A receipt that shows none of those, or a card terminal slip with just an amount, does not support a VAT claim. If your sundry account is full of £4.99 and £11.50 entries with VAT reclaimed on every one and no receipts to back them up, a VAT inspection will add the VAT back, with interest and possibly a penalty.
There is also the question of whether VAT was chargeable at all. Flowers, greetings cards and most shop purchases carry VAT at 20%. Postage stamps, bank charges, charity donations and fines do not. Software with the wrong default tax rate on the sundry account will happily reclaim 20% on a £40 Companies House penalty, and we have seen it done.
A Worked Example: What Was Actually in the Sundry Account
Here is the joinery company from the start of the guide, which we will call Hadley Wood Joinery Ltd, a fictional business with a 31 March year end. Turnover £620,000, sundry expenses as booked £9,400.
| What was in the sundry account | £ | Where it should have gone | Tax effect |
|---|---|---|---|
| Design software and cloud storage subscriptions | 2,100 | Software costs | Deductible, but wrong category |
| Staff Christmas party and summer barbecue | 1,850 | Staff entertaining | Deductible for the company, within £150 per head exemption |
| Lunches and drinks with customers and architects | 1,300 | Client entertaining | Not deductible, VAT not reclaimable |
| Parking fines and a bus lane penalty on the vans | 900 | Fines and penalties | Not deductible |
| Director's gym membership, paid by the company | 1,200 | Director's loan account or P11D benefit | Not deductible as booked, reportable benefit |
| Blades, bits, screws, glue and sandpaper | 640 | Consumables | Deductible, but wrong category |
| Genuine odds and ends | 1,410 | Sundry expenses | Deductible |
| Total | 9,400 |
The corrections mattered. Entertaining and fines of £2,200 had been deducted when they should not have been, which at the 25% main rate of corporation tax understated the tax by £550. VAT had been reclaimed on the client entertaining, which added about £217 to the VAT owed. The gym membership was a benefit that had not been reported, with Class 1A National Insurance due on top. None of these sums is large on its own. Together they were about £1,000 of tax and NI plus the time cost of correcting a filed return, and that is the small end of what we see.
The genuine sundries came to £1,410, which is 0.23% of turnover. That is about what we would expect for a business of this size. The other £7,990 was not sundry at all. It was a list of decisions that had been postponed, and the accounts were less useful and the tax return was wrong because of it.
How Big Should the Sundry Account Be?
Our rule of thumb is that sundry expenses should come to well under 1% of total costs, and in most businesses closer to a quarter of that. If the figure is above 1%, we treat the account as a diagnostic rather than a category. Something inside it is either regular enough to deserve its own code, large enough to be material, or awkward enough that it was hidden there on purpose.
The second test is whether you can describe what is in it. If the owner can say "a few bits for the kitchen, some flowers and a couple of one-off deliveries", the account is working. If the honest answer is "I'd have to look", it has become a landfill.
Both tests matter beyond tidiness. When HMRC opens a compliance check, a large other expenses figure relative to turnover and to similar businesses is one of the things that attracts attention, because inspectors know exactly what tends to be in it. In our experience, a clean sundry account with a short list of small items tends to close that line of enquiry quickly. A fat one opens it.
Setting a Sundry Policy
A sundry policy fits on one line, and it saves hours at year end. Ours, for most small clients, is this: a cost goes to sundries only if it is under £50, has happened fewer than three times in the year, and does not fit an existing code. Anything that breaks one of those rules gets its own code or goes to the code it really belongs in.
Then review the account quarterly. Sort it by description and look for repeats. Three entries for the same software supplier means you need a software code. Anything over the threshold gets moved. Anything that looks like entertaining, fines or a personal cost gets flagged for the tax computation while the detail is still fresh, rather than discovered eleven months later by someone who has to guess.
If you use Xero, QuickBooks or Sage, our guide to bookkeeping covers how to keep the ledgers in a state where this review takes ten minutes rather than an afternoon.
Sundry Expenses and Petty Cash Are Not the Same Thing
The two get confused because so many sundry items are paid for in cash. They are different ideas. Petty cash is a way of paying for things: a small float of notes and coins kept for incidental purchases. Sundry expenses are a category of cost. A sundry item can be paid from petty cash, by card or by bank transfer, and plenty of petty cash goes on things that are not sundry at all, such as milk for the office, which is staff welfare, or a parking ticket, which is travel. Our guide to petty cash covers running the float properly.
One habit worth breaking is posting every petty cash voucher to sundries because the amounts are small. Small does not mean sundry. Twelve months of milk is a regular cost, and it belongs on its own line.
Is Sundry a Fixed or Variable Cost?
For planning purposes, sundries are nearly always treated as a fixed overhead. They do not rise and fall with sales in any predictable way, and the amounts are too small to model. In a break-even analysis or a budget we usually carry them at last year's figure, or as a small fixed monthly allowance. If your sundry line does move with sales, that is a sign that something variable, such as consumables or packaging, has been coded there and needs moving. Our guide to fixed and variable costs covers the distinction.
Our View
We like a sundry expenses account. It is honest about the fact that a business has odds and ends, and a chart of accounts with a code for every conceivable cost is as useless as one with none. What we do not like is sundries used as a place to avoid a decision.
Our suggestion is to treat the account as a reading of how well the books are being kept rather than as a cost to be managed. A small sundry figure that you can describe from memory means the rest of the ledger is probably in good shape. A large one means the year end accounts will take longer, cost more, and carry a higher chance that something disallowable has slipped through into the tax return. The fix is not to spend less on sundries. It is to make the decision about each cost at the point it is booked, when it takes five seconds, rather than at the year end, when it takes an hour and a conversation with HMRC.
How IAK Can Help
We provide bookkeeping and year end accounts for sole traders, limited companies and small businesses across North London and Hertfordshire. Every set of books we look after gets a quarterly review of the sundry and general expenses accounts, so entertaining, fines, benefits and personal spending are dealt with correctly before they reach the tax return. If you are a Xero user, we will set the default tax rates and chart of accounts up so the sundry account stops collecting things it should not. And if you already have a sundry figure you cannot explain, get in touch and we will go through it with you.
Sources
- HMRC Business Income Manual, BIM37000: wholly and exclusively, the test every business expense must pass regardless of which account it is posted to.
- HMRC Business Income Manual, BIM45000: entertainment expenses, on why client entertaining is not deductible.
- HMRC Business Income Manual, BIM42515: fines and penalties, on why fines are not an allowable expense.
- Expenses if you're self-employed, GOV.UK, on the categories of allowable expense and the other business expenses box.
- Expenses and benefits: social functions and parties, GOV.UK, on the £150 per head annual event exemption.
- VAT guide (VAT Notice 700), section 16: VAT invoices, on simplified invoices for supplies of £250 or less and the evidence needed to reclaim input tax.
- The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008, Schedule 1, legislation.gov.uk, for the profit and loss account formats in which sundries fall within administrative expenses.