From pencil cases to parking payments, there are plenty of costs associated with self-employment. The good news is, many of these costs are classed as ‘allowable business expenses’ and can be deducted before you work out your annual taxable profit. So, in practice, if you earn £35,000-per-year and you claim £5,000 in allowable business expenses, you’ll only be taxed on the remaining £30,000. This is what’s known as your ‘taxable profit’.
What expenses can I claim as a Self-Employed Person?
As a self-employed person, there are a whole host of costs and charges that you can claim as permissible expenses, such as:
Expenses can be claimed for accommodation, travel and vehicle insurance, fuel costs, parking fees, vehicle repairs and servicing, hire charges, breakdown cover, taxis and public transport fares, and even meals on overnight business trips. You can’t, however, make a claim for any fines you incur whilst travelling, nor can you take the family for an all-inclusive beano to Benidorm at the leisure of HMRC!
You’re allowed to claim back things like security, insurance, and utility bills. Claims can also be made for things like stationery, computer software and phone and broadband contracts; just think of all those expenses paid calls you could make to your favourite firm of accountants …
You can claim business expenses for the salaries, pensions, benefits and bonuses of your staff, as well as potential agency fees, subcontractor charges, and Employer’s National Insurance. You cannot, however, make claims for domestic assistance, so Jeeves’ salary is strictly off limits.
Accountancy, legal and other professional fees can all be counted as allowable expenses; this includes the hiring of professional services for business-related purposes. You can also claim for any of your business’s insurance policies, as well as bank charges, lease payments and interest payments.
Whilst you’re unable to claim expenses for ‘everyday’ items of clothing (there goes that ‘M.A.G.A’ cap you’ve had your eye on), you are permitted to claim for things like uniforms, protective clothing, dry cleaning, clothing branded with business logos, and even costumes for actors, performers and entertainers … we’re looking at you Björn Ulvaeus!
Unfortunately, you can’t make a claim for depreciated equipment, or any goods or materials which were purchased for private use – so, put that 50 Shades boxset back on the shelf. The good news is, you can claim expenses for stock (resalable goods), raw materials, and direct costs from the production of goods or produce.
As a self-employed person, you’re entitled to make a claim if you’re using your home as an office – but only the room/s that you use for work. So, unless you’re doing your filing in the downstairs bathroom, it might be worth leaving that one out. You are, though, able to claim a proportion of your costs for things like heating, electricity, council tax and rent or mortgage interest payments.
Advertising, website costs, free samples, trade journals, and memberships to certain business-related organisations are all things which you can claim allowable business expenses for. This doesn’t include payments to your favourite cat charity or political party. Tax relief is also unavailable for the wining and dining of clients in high-end restaurants. Maccy D’s it is then.
Five things self-employed people should consider when claiming expenses:
- Different rules apply if your business is incorporated and you are running a limited company. In this instance you can deduct any business costs from your pre-tax profits but any item you make use of must be recorded as a company benefit.
- If you use an item for both business and personal reasons, you can only claim expenses for the portion that’s used for business; i.e. a telephone bill.
- If you buy something that your business will use over a number of years, i.e. machinery, you’re entitled to claim tax relief via ‘capital allowances’.
- Simplified expenses (SE) are also an option for sole traders, particularly those who may not be as fond of complex calculations as we are. With SE, you can ascertain your business’ expenses (for things like home working and vehicle costs) using flat rates, as opposed to calculating your actual business expenditure.
- ALWAYS keep records of all your business’s income and expenses, in order to work out your profit ahead of your annual tax return.
Stake your claim
For a complete A-Z guide on business costs and expenses – and whether or not you can claim tax relief on them – read our free guide, put together by FreeAgent’s Chief Accountant, Emily Coltman FCA.
If you’re a contractor, freelancer, or if you’re self-employed, and you’d like professional advice and support with your taxes, get in touch today to find out what our expert team can do for you.