Understanding tax allowances and what you’re entitled to
Discover the tax breaks you get when you're self-employed
One of the benefits to being self-employed is being allowed to claim back certain costs against tax.
Equipment. All home office equipment costs can be offset. This can include such items as building storage units in your home as well as regular stationery bills, postage costs etc.
Use of Home. You can charge a reasonable fee per week to run your business at home. This covers an element towards heating. lighting bills, water etc.
Travel. You can include the cost of travel to see clients or to complete work. If you are travelling overseas on business, you can include most of these costs. But watch out for extending a business trip for pleasure because the taxman will not allow you to offset leisure costs against tax.
Entertainment. Some of these costs are acceptable. If you are staying away on business and are more than 50 miles from home, the taxman will allow the cost of evening meals etc., but he is not going to accept every pub meal bought locally as a legitimate business expense.
Pensions. You can offset pensions against tax. The benefits depend on your age but basically amount to a minimum of 17.5% of your net income – accountants often advise putting spare profit into a pension scheme as a tax-efficient way of saving.
Tax Allowances. There are a series of basic tax allowances available to everyone. Your accountant will have a list and the information is also available from the tax office. Such benefits include a basic personal allowance, which increases over the age of 65. The married person’s allowance, an allowance for maintenance payments for dependent children and mortgage interest relief are three allowances that have recently been axed so may apply to previous year’s tax payments but will not be applicable in the future.
Maternity benefits. Many women set up an office from home as they start a family. As a self-employed person you are entitled to state maternity allowance for up to 18 weeks (you can take this break either before or after the baby is born or both) provided that you are not invoicing out in that period.
Remember that a long break from work will probably mean a drop in income for the overall year. Think about appealing to reduce your tax payments.
The golden rules
- Keep organised
- Do everything on time
- Do not be afraid to ask for help