If you’re self-employed in the UK and are not sure what you can and cannot claim as a business expense you are not alone. Many small business owners, freelancers and contractors do not claim expenses because they hold doubts over what they can expense, many not bothering to find out and losing out year after year.
In simple terms, for example, if your turnover is £40,000, and you claim £10,000 in allowable expenses, you only pay tax on the remaining £30,000 – known as your taxable profit. If you do not find out if something is an expense, do not retain your receipts on or offline or just become complacent, then you will just end up paying the taxman more than necessary.
Some things are not expendable. For example, money taken from your business to pay for private purchases is not allowable. But the government has outlined when sometimes business and personal expenses can collide and how to calculate those. For example, if you work or run your business from home. Please see later on in this report for more information.
If you run your own limited company, it is important you understand that you need to follow different rules to say a contractor or sole trader.
You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.
Costs you can claim as allowable expenses
These include:
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.
Contact the Self Assessment helpline if you’re not sure whether a business cost is an allowable expense.
Source: Gov.uk
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, for example:
- equipment
- machinery
- business vehicles, for example cars, vans, lorries
You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.
If you use cash basis accounting what expenses can you claim?
If you use cash basis accounting and buy a car for your business, HMRC says 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.
What can you claim if you use something for business and personal reasons?
You can only claim allowable expenses for the business costs.
For example, your mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business. You can claim £70 of business expenses.
If you work from home what can you expense?
You may be able to claim a proportion of your costs for things like:
- heating
- electricity
- Council Tax
- mortgage interest or rent
- internet and telephone use
You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.
If you have, say 4 rooms in your home, one of which you use only as an office. Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
Many accountants though may ask you to count not just bedrooms, but bathrooms and kitchens, reception rooms, utility rooms, etc. so make sure when doing your calculations you do not count too many or too few rooms that you work in. Accountants will for the most part be conservative when it comes to room counting.
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
What are simplified expenses?
You can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:
- vehicles
- working from home
- living on your business premises
Office, property and equipment: what can be claimed as an expense?
Claim items you’d normally use for less than 2 years as allowable expenses, for example:
- stationery
- rent, rates, power and insurance costs
For equipment you keep to use in your business, for example, computers or printers, claim:
- allowable expenses if you use cash basis accounting
- capital allowances if you use traditional accounting
You cannot claim for any non-business use of premises, phones or other office resources.
Stationery
You can claim expenses for:
- phone, mobile, fax and 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)
For more detailed expense information, such as training or marketing costs, go to the hyperlinks above under the section Costs you can claim as allowable expenses.