We often get asked what you can and can't claim in expenses if you are self-employed. Of course, if you’re running a business, that business will have various costs to meet. And naturally you should not be paying tax on anything that isn't profit.
If you company turnover is £60,000 for example, but you have £25,000 in allowable expenses, you will only pay tax on the profit which is £35,000.
According to the HMRC, costs you can claim as allowable expenses include:
- office costs, eg stationery or phone bills
- travel costs, eg fuel, parking, train or bus fares
- clothing expenses, eg uniforms
- staff costs, eg salaries or subcontractor costs
- things you buy to sell on, eg stock or raw materials
- financial costs, eg insurance or bank charges
- costs of your business premises, eg heating, lighting, business rates
- advertising or marketing, eg website costs
But sometimes it is not simple to work out if a cost is allowable or not. For example, iIf you use something for both business and personal reasons, you can only claim allowable expenses for the business costs.
So you might have a mobile phone bill for £400 but of this, £220 was on personal calls and £180 on business calls. You can only claim for the £180 in business calls.
Here we look at areas which commonly cause confusion:
Working from home
If you work from home, you may also be able to claim a proportion of your costs for things like heating, electricity, Council Tax, mortgage interest or rent and internet and telephone use.
You’ll need to find a reasonable method of dividing your costs, eg by the number of rooms you use for business or the amount of time you spend working from home.
Mileage allowances
You can claim back 45p per mile for the first 10,000 business miles travelled. For any business mileage in excess of 10,000 miles you can claim 25p per mile.
Professional fees
If you are a member of a professional body and pay annual fees, you should be able to offset them against tax.
Broadband/phone
We have already looked at how to divide up call costs but you can also claim a proportion of the line rental and broadband connection based on business use.
Computers
If your computer is only used by the business, you can offset the whole cost. But if the family uses it half the time ... you get the idea.
Clothing
You can only claim for items of clothing if you need specialist items that are entirely used for work. A self-employed journalist, for example, cannot claim for a new suit arguing he has to wear it as part of his work. But if, say, you are a self-employed builder, you can offset the full cost of steel toe-capped boots and any protective clothing.
Entertaining
Sorry folks! Taking clients out for lunch is a "non allowable expense", even if you spend the whole time talking about work.
If you want help with your expenses, call us today.
