Not sure what expenses you can claim for in your self-employed business? Look no further as we break down all the different costs you can claim back on your tax return to reduce that tax bill.
You can add up all of your expenses at year-end and deduct them from your turnover to work out how much tax you are liable for.
But not every expense is an allowable expense. It's vital to know what you can and can't claim for so you can pay your self-employed tax bill accurately and on time.
Allowable Expenses Explained
As we explained above, HMRC doesn't allow self-employed business owners to subtract all of their expenses from their turnover. HMRC does however give a clear breakdown of the costs that you can and can't include.
This is why we use the term 'allowable expenses', they are the expenses HMRC allow you to deduct from your turnover.
By clearly defining which expenses are allowable, your self employed business can only deduct expenses that are directly related to your business.
Having a good knowledge of what expenses are allowable for your self-employed business helps you calculate your profits and ensures you pay the right amount of tax every time.
For example, let's say your business had a turnover of £30,000 and expenses of £5,000. You will only pay tax on the £25,000, which is known as your taxable profit.
Can You Do Your Self Assessment Expenses Early?
The self-assessment tax deadline is the same every year: January 31st.
Don't let that stop you from doing your books early though. You can file a self-assessment tax return any time after April 6 ( the start of the new tax year ). Doing an early tax return gives you more time to save for tax and address any mistakes that might have cropped up over your business year.
Keeping Accurate Records
Bookkeeping is a crucial part of any business. Keeping accurate records can make or break your business come tax season. You need to make sure you keep all of your receipts, invoices, bills and credit notes that relate to your business for five years, in case HMRC decide to audit.
Businesses often start out doing their own bookkeeping but soon become overwhelmed with all the regulations and software they need to learn so outsource to a company like us.
The benefits of outsourcing your bookkeeping are numerous but mostly save you time so you can get back to working on your business, without worrying about a never-ending stream of paper to file away.
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Our Bookkeeping service lifts the workload of record-keeping from your shoulders and provides peace of mind that every bill, invoice and quote is tracked expertly.
What Can I Claim On Tax?
Here is a list of expenses that are usually accepted as allowable business expenses on your tax return:
Office Expenses
Items that you would usually use for less than two years can be claimed as business expenses such as:
Printing & Ink
Business Telephone, Mobile & Internet
Stationary
IT software
Business Premises
Allowable expenses are :
Rent
Repairs & Maintenance
Utility bills
Premises Insurance
Security
You cant claim for the construction or building of your business premises.
If you run your business from your home, you can include a portion of your utility bills as allowable expenses. You will need to work out how much of which utility is used for business and personal uses.
gov.uk gives a clear example method on how to calculate your usage:
You have four rooms in your house, one of which is used as a business office
Your annual electricity bill is £1000, each room uses the same amount of energy
you can then divide the bill by four the claim £250 as your allowable business expense.
Self-employed business owners who work from home at least 25 hours a month can use 'simplified expenses' which is fully explained in this guide.
Travel
If you use a vehicle for business purposes the following expenses are allowable:
Vehicle Insurance
Breakdown Cover
Hire Fees
Fuel
Repairs
Servicing
The government provides a flat rate for business use of a vehicle, known as 'simplified vehicle expenses', which can save you a lot of time as allowable vehicle expenses can be difficult to calculate.
You can also claim for the following business travel expenses as long as they are 100% business expenses:
Public Transport costs (Plane fare, Taxi fees, Train tickets etc)
Hotel accommodation
Meals on overnight business trips
Travel to meetings/ sales appointments
Unfortunately travel between work and home is not an allowable expense.
If you decide to mix a personal trip with a business trip you must calculate the cost of the personal part of the trip and separate those costs from the business expenses.
Entertaining clients, suppliers or customers is not an allowable expense.
Stock and Materials
Any stock and materials that are purchased in order to produce your product or service are allowable expenses.
Goods brought for personal uses are not an allowable expense.
Legal and Financial Costs
The costs of hiring professional services for business reasons are allowable expenses such as:
Accountants
Solicitor
Surveyor
Architect
The following financial costs are allowable expenses:
Bank fees
Overdraft charges
Credit card charges
Interest on bank and business loans
Hire purchase interest
Leasing payments
Please note that if you are using cash basis accounting the maximum accumulative amount of interest and bank charges is £500 per tax year.
Business Insurance
Business insurance is an allowable expense.
Marketing
Marketing costs are allowable expenses including but not limited to:
Website costs
Direct Mail advertising
Print advertising
Directory listings
Google & Facebook Ads
Clothing
Uniforms for work are an allowable expense. This includes PPE or costumes for actors, but you cannot include the everyday clothes that you wear while at work.
Staff Costs
Most staff costs are allowable expenses including:
Wages & Salaries
Agency fees
employer National Insurance Contributions
Staff training courses & education costs
Benefits
Bonuses
Pension contributions
Subscriptions
Subscriptions to business memberships & trade organisations are allowable expenses along as they are related to your business.
Tax Investigation Insurance
HMRC can investigate any tax return whener they like. You are likely to be chosen for investigation at some point, most businesses are investigated sooner or later.
This doesn't mean you have done anything wrong, it's just that small businesses account for over half of the £35 billion missing taxes HMRC are supposed to collect every year.
Regardless of the enquiry outcome, you’ll still be liable for the professional costs which could be thousands. Furthermore, it’s not uncommon for investigations to last many months.
That’s where our Tax Investigation Service comes in to help you. You’ll be protected from the costs of accountancy fees associated with a tax investigation, so you can relax in the knowledge that there will be no additional accountancy fees to pay.
Limited Company Expenses
Limited companies face a different set of rules when it comes to business expenses. check out our Limited Company Expenses Guide if you are going limited.
Tax Can Be Complicated
Taxes are a confusing part of life and business, and you can be fined if your tax return is not filed correctly. The government has a great selection of advice and guides for business owners.
We are also here to help, schedule a call today to see how we can help your business.