Claim Expenses as Self-Employed

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Working form home expenses
Overview

One of the big benefits of being self-employed is that, you can claim certain amount of the tax back… The trick is knowing what you can and what you cant claim (allowable expenses).

Example

If your company has turned over £100,000 during the financial year, then you take away allowable expenses;- premises costs, travel expenses, staff costs, and that runs you about £50,000. You only pay tax on the remaining £50,000.
So Net £100,000 minus £50,000 costs leaves You with £50,000 – known as your taxable profit.

Fair Warning
Taking money from your company to pay for a cleaner to clean your house does not count as allowable expenses!

Costs claimed as capital allowances.
Capital spending = is when you buy an asset that will be used by the business for 2 years or more.
A small business would count an asset generally as an item of equipment, otherwise known as plant and machinery, but can also be land and buildings. Examples include vehicles, computers and large tools. If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, e.g.:

  • Equipment
  • Machinery
  • Business vehicles, e.g. cars, vans, lorries

If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.

If you use something for both business and personal reasons
You can only claim allowable expenses for the business costs.

Example
Your mobile phone bills for the year total £400. Of this, you spend £130 on personal calls and £370 on business. You can claim for £370 of business expenses.

Work From Home?

As you would the running of an office/premises you also have an allowance for working from home.

  • Heating
  • Electricity
  • Council Tax
  • Mortgage interest or rent Internet and telephone use

Example
You have 4 rooms in your home, one of which you use only as an office.

Every month my gas and electricity costs £100. Divide that
£100 by the 4 rooms which leaves £25 as allowable expense.

If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).

Office Property and Equipment

Claim items you’d normally use for less than 2 years as allowable expenses, eg:

  • Stationery
  • Rent
  • Rates

Energy consumption and insurance costs for equipment you keep to use in your business, eg computers or printers, claim:

  • allowable expenses if you use cash basis accounting
  • capital allowances if you use traditional accounting

Stationery
You can claim expenses for:

  • phone, mobile, fax
  • internet bills
  • postage
  • stationery
  • printing
  • printer ink and cartridges
  • computer software your business uses for less than 2 years
  • computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Claim other software for your business as capital allowances, unless you use cash basis.

Rents, rates, power and insurance costs
You can claim expenses for:

rent for business premises
business and water rates
utility bills
property insurance
security
using your home as an office (only the part that’s used for business)
Business premises
You can’t claim expenses or allowances for buying building premises.

Claim expenses for repairs and maintenance of business premises and equipment.

For alterations to install or replace equipment, claim:

allowable expenses if you use cash basis accounting
capital allowances if you use traditional accounting
You can also claim capital allowances for some integral parts of a building, eg water heating systems.

Car, van and travel expenses

You can claim allowable business expenses for:

  • vehicle insurance
  • repairs and servicing
  • fuel
  • parking
  • hire charges
  • vehicle licence fees
  • breakdown cover
  • train, bus, air and taxi fares
  • hotel rooms
  • meals on overnight business trips
    You can’t claim for:

  • non-business driving or travel costs
  • fines
  • travel between home and work
  • You may be able to calculate your car, van or motorcycle expenses using a flat rate (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle.
  • Buying vehicles
    If you use traditional accounting and buy a vehicle for your business, you can claim this as a capital allowance.

    If you use cash basis accounting and buy a car for your business, claim this as a capital allowance as long as you’re not using simplified expenses.

    For all other types of vehicle, claim them as allowable expenses.

Clothing

Clothing expenses
You can claim allowable business expenses for:

  • uniforms
  • protective clothing needed for your work
  • costumes for actors or entertainers
    You can’t claim for everyday clothing (even if you wear it for work).

Staff

Staff expenses
You can claim allowable business expenses for:

  • employee and staff salaries
  • bonuses
  • pensions
  • benefits
  • agency fees
  • subcontractors
  • employer’s National Insurance
    You can’t claim for carers or domestic help, eg nannies.

Reselling

Reselling goods
You can claim allowable business expenses for:

  • goods for resale (stock)
  • raw materials
  • direct costs from producing goods

You can’t claim for: any goods or materials bought for private use
depreciation of equipment

Legal and financial costs
Accountancy, legal and other professional fees can count as allowable business expenses.

You can claim costs for:

  • hiring of accountants, solicitors, surveyors and architects for business reasons
    professional indemnity insurance premiums

You can’t claim for:

  • legal costs of buying property and machinery – if you use traditional accounting, claim for these costs as capital allowances
  • fines for breaking the law
  • Bank, credit card and other financial charges

You can claim business costs for:

  • bank, overdraft and credit card charges
  • interest on bank and business loans
  • hire purchase interest
  • leasing payments
  • alternative finance payments, eg Islamic finance

If you’re using cash basis accounting you can only claim up to £500 in interest and bank charges.

You can’t claim for repayments of loans, overdrafts or finance arrangements.

Insurance policies
You can claim for any insurance policy for your business, eg public liability insurance.

When your customer doesn’t pay you
If you’re using traditional accounting, you can claim for amounts of money you include in your turnover but won’t ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they won’t be recovered from your customer in the future.

You can’t claim for:

debts not included in turnover
debts related to the disposal of fixed assets, eg land, buildings, machinery
bad debts that aren’t properly calculated, eg you can’t just estimate that your debts are equal to 5% of your turnover
Bad debts can’t be claimed if you use cash basis accounting because you’ve not received the money from your debtors. With cash basis, you only record income on your return that you’ve actually received.

Marketing, entertainment and subscriptions
You can claim allowable business expenses for:

  • advertising in newspapers or directories
  • bulk mail advertising (mailshots)
  • free samples
  • website costs

You can’t claim for:

  • entertaining clients, suppliers and customers
  • event hospitality
  • Subscriptions

You can claim for:

  • trade or professional journals
  • trade body or professional organisation membership if related to your business

You can’t claim for:

  • payments to political parties
  • gym membership fees
  • donations to charity
  • but you may be able to claim for sponsorship payments

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