Self-assessment and expenses for self-employed
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If this is your first year as self-employed, and you are working through your tax return, you want to considerate your expenses, as they can make a big difference on your final tax bill.
What can I claim?
HMRC has very strict rules about what can and can’t be considered as a work expense, and it is very important to clearly understand what can and can’t be claimed.
Only work expenses are allowed, and they will reduce your taxable profit. For example, if your income is £35.000, and your expenses £7000, you can deduct those from your income and obtain a taxable profit of £28.000
These are some of the costs that usually count as allowable business expenses:
Anything you buy or spend money one which is office-related. From computers, to software and printers, business stationery, printing costs (including printer ink), and postage.
Whilst you cannot claim the money spent to buy or build your office premises, rent, maintenance and repair, utility bills, property insurance and security are considered business expenses.
If you run your business from home, you can include part of your home utility bills by figuring out which percentage of your house is used for working, and so which percentage of the bills can be deducted. If you work from home at least 25 hours a month, you can use a flat monthly rate calculated by the government called ‘simplified expenses.’
Any memberships or bodies you are part of, trades association etc, or anything you subscribe to for work can be claimed back.
The cost of marketing including any form of advertising, directory listings, on and offline campaigns, merchandise and website costs can be claimed.
Business related vehicle costs can be claimed, however if you are using a personal vehicle it may be hard to quantify which expenditure is personal and which is business and therefore you may find it easier to claim the standard mileage rate for any business travel done in your own car.
Also, don't forget that the government encourage car share or other methods, or travel and allowances are available if you car share or travel on a bicycle
Business travel by train, bus, plane or taxi, meals during multi-day business trips and hotel rooms can also be claimed. Commuting time from your home to work is not accepted.
Entertaining clients, suppliers and customers, or event hospitality are not acceptable business expenses, and nor are expenses coming from a mixed leisure-work trip, unless you can clearly separate what is work and what is not.
You can include the cost of business insurance, for example public liability insurance and professional indemnity insurance.
Stock and materials
Sock, raw materials, and the direct costs that arise from producing your goods can be claimed as business expenses.
Legal and financial costs
Any professional you need to hire, such as accountants, surveyors, solicitors etc. can be included as a cost in your calculation.
Bank fees, overdraft and credit card charges, interest on bank and business loans, hire purchase interest and leasing payments can also be claimed.
Everyday clothing cannot be claimed, but you can claim for any uniform and specific clothing you must wear to work, such as safety bots, protective clothing etc.
Employee and staff salaries, Employer NIC, pension contributions, bonuses, benefits, agency fees etc.
How do you calculate business expenses for your tax return?
When completing your tax return, you might be able to choose whether to submit a single figure for your expenses or give a detailed breakdown. Whichever option you go for, it is important you keep proof of all your expenses, storing the receipts/proof of payment/ invoices for 6 years plus the current year, as you could be asked to present them should HMRC decide to start a tax investigation.
If you have doubts and questions, please seek professional advice or refer to the Gov.UK website.