Self-employed expenses: exactly what allowable expenses do you get?

If you are self-employed, claiming as much tax relief as possible is probably one of your main priorities. As taxes come out of your hard-earned profits, you will want to pay HM Revenue & Customs (HMRC) only what is due, and calculating this figure can be a key part of running your accounts as a self-employed business owner.

However, you may not be aware of all the allowances and reliefs available and that many can be back claimed for the past three years if you were entitled to them. To be successful, you must keep proof of all the expenses, bills and mileage you are claiming for and which are exclusively for business use.

Below we explain some of the key expenses small business owners should consider.

Household bills

If you work from home, you should be able to claim a portion of your household bills (heating, water, electricity etc.) even if your level of business use is relatively minor. Your claim should be based on your total household bills, the area you’ve used and the duration you used it for business purposes. HMRC will now accept a £4 per week office deduction without any proof. If you claim more than £4 a week, you’ll need to provide evidence of what you’ve spent it on.

You should ensure there is scope for some personal use of the room, e.g. in the evenings. If the room is in business use 24/7, you will lose Capital Gains Tax relief on that part of the house. If you trade as a limited company, it is possible to effectively charge the company ‘rent’ to cover the portion of your household expenses you’ve incurred because you worked from home. Be aware though that this may lead to additional reporting requirements and so the administrative burden may outweigh any tax savings.

Office costs & Phone/Internet

If you work out of an office rather than your home, then you will be able to claim on all running costs, repairs, maintenance, etc. Business phone calls can be claimed, but only a proportion of line rental and broadband charges can be claimed as you need to allow for personal use. What percentage depends on how much they are used for business activities – this can be clearer if you have a dedicated business phone or mobile for business activities (for more information, take a look at our guide to business mobile phone contracts)

Laptops, printers and software can all be written off – in total if used exclusively for the business – or a proportion of the costs if divided between personal and business.

Travel expenses

If you incur travel expenses such as train tickets, car park fees, etc. to visit customers/ suppliers, make sure that you keep your receipts as these should be recoverable. But do bear in mind that travel from home to the place of business is commuting and therefore generally disallowed. If you’re working from home, travel costs to visit clients should be fully allowable. However, do be careful if you’re working for the same client with some regularity.

When using your car, you could choose to claim a business percentage of your total costs of running the vehicle or claim for your business mileage. In terms of travel expenses per mile, HMRC will accept mileage being claimed at 45p per mile for the first 10,000 miles and 25p thereafter.

If you opt for mileage, this will also cover the cost of the car itself. Otherwise if you go for a percentage of your actual costs, there should be tax relief available for the cost of the car. And if you have an environmentally-friendly car with low CO₂ emissions, you should enjoy the most favourable rate of tax relief.

Whichever route you go for, you must make your selection when you acquire the vehicle because it may not be possible to switch further down the line.

If your business is VAT registered, there are various ways you can recover the VAT on your business motor running expenses including mileage.

If you’re just about to launch your business, it’s worth seeking professional advice on how to structure the ownership of any vehicles used for business purposes and how expenses should be accounted for. If you’re an existing business, it may still be worthwhile reviewing your affairs as there may be some savings available.

The above three will probably be your biggest expenses, but other items and services you can claim for include:

IT, Marketing & Admin Costs – Adverts in print titles, online campaigns, website design, domain registry, hosting, etc. can all be claimed for as can any costs you have for using the services of accountants, solicitors, etc.

Stationery – Home office running costs such as paper, pens, ink cartridges and postage for business use can be written off against profits.

Professional fees & subscriptions – You can claim tax relief on professional fees, membership fees, subscriptions, etc. if they are necessary or beneficial for your work. Please visit the HMRC website for more details.

Insurance costs – Business insurance – home insurance if working from home – and car insurance (allocate a reasonable amount to your business) can be claimed.

Staff costs – All costs for employing staff, such as wages, National Insurance (NI) contributions, pension, training, childcare provision, can be claimed for.

Training courses – If you are a sole trader you can claim tax relief if you are refreshing or updating an existing skill, however, you cannot claim it if you are learning a new skill.

Bank charges – All business bank and credit card charges, leasing and hire purchase interest payments are tax deductible.

Stock – Everything you buy for re-sale or materials you use will be tax deductible. But to get the timing right for the costs you’re entitled to, it is important to make sure you record what stock you have left at the end of your accounting period.

Bad debts – Any amount that is included in your turnover figure, but has not been paid and has been written off as unrecoverable, can be claimed.

Clothing – You can even claim for the clothes on your back If you need to buy a uniform or specialist clothing for your business, such as protective gear. But no, suits do not count.

However, the best way to make sure you don’t pay HMRC too little, or too much, is to consult an expert accountancy service. As well as looking at what expenses you can claim for, a TaxAssist accountant can help take care of all your tax affairs efficiently and accurately: from registration with HMRC and completion of your tax return, to calculating your tax liability and tax due dates.

Jo Nockels FCCA, is Senior Training and Communications Managers at TaxAssist Accountants, the UK’s largest network of accountants catering for more than 65,000 small businesses and individuals.

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.