When you complete your Self Assessment tax return, one of the key tasks is working out your business expenses. Some costs you incur as a self-employed person can be deducted from turnover to reduce your taxable profit. These are called allowable business expenses.
The tax you pay from your self-employed business is based on profit, which is turnover minus allowable expenses. Knowing which costs you can legitimately claim helps you calculate your profit accurately and pay the right amount of tax. If your income in a tax year was £30,000 and you had £7,000 of allowable expenses, you would pay tax on £23,000, which is your taxable profit.
What Are Allowable Expenses?
Allowable expenses are business costs that HM Revenue and Customs allows you to deduct when calculating your taxable profit within a Self Assessment tax return. These expenses must be incurred wholly and exclusively for your self-employed work, and they must relate directly to running your business.
Office Expenses
Office costs include items such as stationery, printing, postage, printer ink, and equipment used for business purposes such as a computer or printer. If you do not use cash basis accounting, some equipment costs may need to be claimed as capital allowances instead of ordinary expenses.
Travel
You can include travel expenses that relate directly to your business such as fuel, vehicle insurance, hire charges, servicing, breakdown cover and repairs. The cost of travel between your home and your regular workplace cannot be claimed. You can choose to use simplified vehicle expenses, which is a flat rate method approved by HMRC, or calculate actual vehicle running costs when you complete your tax return.
Business Premises
If you incur costs for business premises you can claim expense items such as rent, maintenance, repairs, property insurance, utilities and security. However, you cannot claim the cost of buying or building your business premises as an expense.
Financial and Legal Costs
Expenses for professional services that directly relate to your business income are allowable. These include fees for accountants, solicitors, surveyors and other professionals you engage to support your business. You can also include business bank charges, loan interest, overdraft fees and credit card interest on business accounts.
Stock and Materials
If you buy raw materials for goods you make or stock you sell, these costs can be included as allowable expenses when calculating your taxable profit.
Marketing
Costs you incur to promote and advertise your business, such as directory listings, online advertisements, flyers, mailshots and business signage, can be included as expenses. You cannot claim entertaining clients or suppliers as a marketing cost.
Business Insurance
You can include the cost of business insurance such as public liability, professional indemnity and employer liability insurance when preparing your tax return.
Staff Costs
Staff and employee costs that are related to your business activities can be claimed. This includes staff salaries, bonuses, employer pension contributions, employer National Insurance contributions and fees paid to agencies or subcontractors you engage.
Clothing
You can claim the cost of uniforms or protective clothing that you must wear for business tasks. Everyday clothing that you would wear outside of work cannot be claimed as a business expense.
Subscriptions
Subscription costs for professional bodies, trade organisations, industry journals and membership fees that are directly relevant to your work can be included as allowable expenses.
Use of Home, Telephone, Broadband and Internet
If you work from home as a self-employed person, you can claim a portion of your household costs that relate to a business workspace. This may include part of your electricity, telephone and broadband costs. You must calculate the business use proportion reasonably on a fair basis.
Need Any Help?
Irrespective of whether you need more information regarding allowable and ta-deductible expenses if you are a self-employed individual or you are on the lookout for self-employed insurance, Target Accounting can help you out! Also Read more about Ultimate Business Tips for the Self-Employed
With our help, you can easily build a self-employed insurance policy or take care of your tax refunds in a straightforward and hassle-free manner. We are an accountancy firm with years of experience under our belt. In addition to that, we have a team of experts who can take care of all your queries and problems related to the financial part of your business.