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Definition
Disallowable expenses are costs that appear in a company's accounts but cannot be deducted when calculating taxable profit, so they are added back in the tax computation.
In plain terms
Some things you spend money on — client entertaining, certain fines and penalties, depreciation — are real business costs but the taxman will not let you deduct them. They reduce your accounting profit but not your tax bill.
Why it matters for your company
Disallowable expenses are why your taxable profit is usually higher than your accounts profit. Knowing which costs are disallowed helps you budget the true tax bill and avoid a nasty year-end surprise.
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