Did you know?
You can reduce your tax by claiming on business expenses as self employed individual
As a sole trader or freelancer, it is wise to understand your basic allowable expenses, even if you’re paying an accountant to help with your self assessment tax return.
You can claim tax back on some of the costs of running your business these are called ‘allowable expenses’. These are legitimate expenses that you allowed to deduct from the profit that your business makes.
More expenses = Less Tax!
Expenses can reduce the tax bill and you may be surprised by how much.
As an example, if your turnover is £80,000 and you claim £20,000 in allowable expenses, you only pay tax on the remaining £60,000—a substantial saving.
These are flat rate expenses that allow you to quickly calculate tax relief on costs such as vehicles, working from home and living on your business premises etc.. It can make working your expenses significantly easier and the burden of having to evidence the cost.
More information can be found on the governments website.
Self-employed allowable expenses list
Below, we cover some of the things you can claim for. To reiterate, we assume you’re using cash basis accounting, as the rules for traditional accounting can be slightly different. So please be aware of this.
Office equipment and tools
You can claim expenses for business equipment such as laptops, PCs, printers, and computer software that your business has used.
As well as the stationery items such as paper, envelopes and pens, you can also claim back tax on postage and printing, including the costs of printer ink and cartridges you use as part of your business.
Phone and internet
If you use your phone, mobile and internet for personal and business use, you’ll need to demonstrate a realistic way of dividing the costs and can only claim tax back on the part for business use.
Professional subscriptions and services
If you get advice from an accountant, lawyer or other professional as part of your business, you can claim tax back on their fees. Yes that’s right! Accountants fees are tax deductible.
You can also claim allowable expenses for hiring surveyors and architects for your business (but not for personal home improvements, I’m afraid).
If you have a business bank account, you can claim tax relief on bank, overdraft and credit card charges or interest on business loans.
You can also claim tax back on hire purchase, lease, or other financial payments for equipment you use in your business.
If you’re a member of a professional trade body or organisation as part of your business, you can claim tax relief on your membership fees. Subscriptions to trade or professional journals are also allowable expenses, so claim for those
Staff and employee costs
You can claim tax relief on employee and staff salaries, bonuses, pensions, benefits, staff and employee costs, agency fees, subcontractors, and employer’s National Insurance contributions.
You can claim back expenses if you need to travel for business, including train, bus, taxi, airfares, and accommodation costs.
Be aware – If you take a trip that combines business and pleasure, you can only claim tax relief on costs you can show are separate from the private part of your journey.
If you can’t split up the costs, you can’t claim tax relief on any part.
Car and vehicle costs
If you use a vehicle as part of your business, you can claim tax relief for expenses such as petrol, insurance, and repairs or you can claim Mileage allowance. Be aware which ever method you choose you need to stick to that method going forward.
Mileage allowance – As a self-employed person, you can add up all your motor expenses for the year and work out the separate business element of the total cost of using a personal vehicle. This can be a timely exercise, but there is a simplified calculation called the MAR, which is the mileage allowance rate which you can claim up to 45p for the first 10,000 business miles you do in your vehicle.
Other vehicle-related areas you can claim expenses on include:
- Congestion and low-emission zone charges
- Breakdown cover
- Hire charges.
Again, tax relief only applies to these if they are business rather than personal expenses.
Unfortunately you can’t claim tax back on parking fines or other fines incurred while driving. There’s no tax relief for breaking the law.
Food and clothing – even Laundry!
Generally when it comes to clothing, you can’t claim for clothing if you’d wear it as part of an everyday wardrobe. So, even if you’ve bought a suit for work, you can’t claim for its cost.
But, if you must buy a uniform that identifies what you do or needs special protective clothing to do your job, you can claim for that.
If you’re an entertainer, and the clothes you’re buying are a costume for a stage, TV or film performance, then you can claim tax relief on those.
Clowns, magicians, acrobats and Elton John impersonators – HMRC enjoys reading your clothing claims trust me!
Even Laundry costs – If you wear a uniform or special protective clothing, you can claim expenses if you wash this, which I’m sure you do!. Check out HMRC’s simplified Laundry allowance as to how much you can claim for, amounts vary from industry to industry.
You can only claim money back on food and drink if it’s a business expense, meaning it must be outside your usual working routine, such as a business trip.
Purchases, stock and materials
You can claim tax back on the following items:
- Items that you resell, these are whats known as stock items
- Raw materials (or ingredients) that you use to make goods for sale
- Direct costs from producing goods.
Marketing and advertising
You can claim tax back on the costs of advertising and marketing your business, including costs for hosting and maintaining your company website.
However – treating a customer or supplier to lunch is ‘marketing’, but HMRC considers this as ‘entertaining’, which you can’t claim tax back for.
Contributions to your personal pension are not a business expense, so they don’t affect your self-employed profits. However, you are eligible for tax relief on any contributions you make, which you can claim for on your tax return.
How can I track my allowable expenses?
You should track your business expenses throughout the year and keep adequate and acceptable books and records (evidence of expenses). It’s important you keep this information available for 7 years. Otherwise if HMRC starts an inquiry, you literally hand HMRC a licence to guess and come up with their own conclusions!
Accounting software such as Quick-books, Sage and Xero are a fantastic was to keep you compliant, they keep you organised, you can snap pictures of your receipts, keeping everything all together in one place.
Understanding allowable expenses can make all the difference to your cash flow, it can reduce your tax and help you understand the true cost of running your business. This will in turn help you make more informed decisions about your business for the future.
Knowing what you can and can’t claim back makes things much easier when it comes to preparing a self assessment tax return.
While we’ve covered some key expenses you can claim back, getting support from an accountant or tax adviser can make all the difference here.
Give yourself plenty of time to get your head around your allowable expenses, speak to the experts if needed, and ensure you don’t have to pay more tax than is required.
At DLR Accounting Solutions we offer many services cost effectively and takes the hassle out of much of the above. We save clients more money than they pay for this service. So what are you waiting for … contact us now….