Year-End Expense Review: What to Check Before Tax Season

Why a Year-End Expense Review Pays Off

A thorough review of your business expenses before submitting your tax return has two benefits: it ensures you've claimed every deduction you're legitimately entitled to, and it reduces the risk that your return triggers scrutiny from the tax authority. Both outcomes have real financial value. Most small business owners who go through a systematic year-end expense review find at least a handful of missing or miscategorised expenses - costs they incurred but forgot to record, or costs they recorded in the wrong category. A few hours of review can be worth hundreds or thousands of pounds in additional deductions.

Step 1: Reconcile Your Expense Records Against Bank Statements

Start by confirming that every business expense that came out of your bank accounts is recorded in your books. Export your bank statements for the year and compare them against your expense records line by line. Every debit on your business account should either appear in your expense records as a categorised business cost, or be explained as a transfer or personal withdrawal. Any unexplained debit is either a missed expense (record it now) or an error (investigate it).

Do the same for any corporate cards. Every card transaction should be in your books with a receipt attached and a business category assigned.

Step 2: Check Your Expense Categories Are Correct

Misclassified expenses are a common cause of inaccurate tax returns. Review each of your expense categories and check that what's recorded there actually belongs. Common misclassification errors include: capital expenditure coded as an operating expense (a laptop coded as "office supplies" instead of as an asset subject to capital allowances), personal expenses that crept into business categories, and expenses in the wrong period (costs from the prior year that should have been accrued but weren't).

Step 3: Recover Missing Receipts

Go through your expense records and identify any entries without a supporting receipt. For each one, try to obtain a copy: most suppliers and vendors will provide a duplicate receipt on request. For online purchases, check your email for an order confirmation. For card payments, your bank statement showing the transaction serves as partial evidence even without a full receipt. For any expense where you genuinely can't recover documentation, write a brief contemporaneous note explaining the expense, its business purpose, the amount, and why no receipt is available.

Step 4: Review Mileage and Travel Records

Mileage is one of the most commonly under-claimed deductions and one of the most scrutinised by tax authorities. Review your mileage log for completeness: does it cover every business journey you made during the year? Is the log contemporaneous (recorded at the time) or reconstructed from memory? Are all entries complete - date, start point, end point, business purpose, miles? An incomplete or obviously reconstructed mileage log is a liability in an audit.

Step 5: Check for Deductions You May Have Missed

Common missed deductions that a year-end review often uncovers:

Home office costs - if you work from home, you may be able to claim a proportion of your utility bills, internet costs, and council tax
Professional subscriptions and memberships relevant to your industry
Bank charges and interest on business accounts
Professional indemnity, public liability, or other business insurance premiums
Accountancy and legal fees
Training and professional development courses taken during the year
Software subscriptions that renew annually and may have slipped through without being recorded

Related reading: how to prepare for tax season.

Step 6: Flag Any Expenses That Could Raise Questions

Finally, review your expense records for anything that might trigger a query from your accountant or a tax authority. Large or unusual expenses should have clear documentation. Any expense with a personal element should have a note explaining the business purpose. Expenses that are unusually high relative to your prior year should be explainable. Better to identify these issues now and prepare documentation than to be asked about them during an audit with no supporting records to hand.

How Note.now Makes This Easy

Note.now's year-end reports give you a categorised summary of all expenses, flagged transactions without receipts, and a reconciliation view comparing recorded expenses to bank transactions. See also: best practices for storing receipts. Explore Note.now's expense tools, or start your free account today.