Self Employed – Allowable Expenses
What is an allowable expense? So you cannot go ahead and subtract all your self-employed expenses. HMRC has clear rules around what you can and cannot include, the expenses you can include are ‘allowable expenses’. HMRC is trying to make sure that you only deduct expenses that are strictly related to your business.
Understanding which of your self-employed expenses are allowable and calculating your profit accurately is very important for making sure you pay the right amount of tax.
Here is an example:
Your business earns £30,000 in a tax year, but your allowable expenses add up to £5,000. You only need to pay tax on £25,000, which is your taxable profit.
These are some of the costs that usually count as allowable business expenses.
You can include business stationery, printing costs (including printer ink), and postage. You can also include business equipment like computers, computer software and printers. If you don’t use cash basis accounting, you may have to claim these as capital allowances.
If you run your business from home, you can include part of your home utility bills. You will need to work out what proportion of your home is being used for business purposes to proportion your utility bills. HMRC have @simplified expenses flat rate’ you can use if you work from home for at least 25 hours a month.
If you rent an office, you can claim expenses for the rent, maintenance and repair, utility bills, property insurance, and security. You can’t claim expenses for buying or building your business premises.
You can claim for travel expenses if your travel is wholly and exclusively for business purposes and is not a regular commute to a base of operations, (the occasional trips to the same place are still claimable). Expenses relating to airfares, train tickets and ferries can also be covered under business travel, provided the above points are applied and are for business purposes. Tolls, congestion charges, and parking fees are all allowable expenses, where your travel is for business. However, you cannot claim a parking fine as a business expense. You can claim for the cost of hotel rooms and meals on overnight business trips.
There are mobile apps that you can use to log your mileage and receipts. If you are currently not using one you need to make sure you keep a manual log and all hard copies of your receipts.
If you use your vehicle for business travel to a temporary work location, you can claim the following rates.
Cars & Vans
Vehicle – Rate Per Mile (On first 10,000 miles in tax year) – £0.45P
Rate Per Mile (On each mile over 10,000 miles) – £0.25P
Motorbikes have a flat rate of £0.24p
HMRC does not allow you to claim business mileage for using a bicycle. You may be able to claim the costs of buying a bicycle for work and the consumables such as tyres or maintenance. Any personal use of the bicycle is likely to reduce the amount you can claim.
HMRC considers hotel stays and meals a viable expense when travelling for business-related purposes, providing the expense is reasonable and not excessive. Your hotel should be as close as possible to your meeting or project you are overseeing. You can’t claim for entertaining clients, suppliers and customers, or event hospitality.
You can include the cost of your raw materials, and the direct costs that arise from producing your goods.
You can include the cost of business insurance, for example, public liability insurance and professional indemnity insurance, employer’s liability insurance.
You can claim the cost of marketing for your business, this includes marketing in newspapers, directory listings, mailshots, free samples and website costs can be claimed.
Employee and staff salaries count as allowable expenses, as do bonuses, pension contributions, benefits, agency fees and employer National Insurance contributions.
Legal & Finance Cost
Hiring a professional like an accountant, a solicitor, a surveyor, or an architect for business reasons can be included as an allowable expense.
You can also include bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest and leasing payments. If you are using cash basis accounting, you can only claim up to £500 in interest and bank charges.
Subscription cost for membership to trade bodies or professional membership organisations if relevant to your business can be claimed along with the cost of subscriptions to trade or professional journals.
You can include the cost of uniform, necessary protective clothing, or costumes for actors or entertainers in your allowable expense. You can’t include the cost of everyday clothing that you wear to work.
If you need to purchase any additional PPE for your role e.g gloves and face masks, this is also considered an allowable expense.
Limited Company Expenses
The rules are different for limited company expenses. If you fall into this category, an expense guide will be coming soon.
If you need any further guidance on what expenses you can claim please check the HMRC website or feel free to get in contact.