Self employed expenses – are you claiming everything you’re allowed to?
One of the questions that we are asked most often by those entering the world of self employment is “what costs can I claim as an expense?” Well, with the deadline for filing Self Assessment personal tax returns edging that little bit closer with each passing week, we thought now would be a good time to recap the answer to this question and provide some examples. And if you’re a seasoned sole-trader then we may even be able to remind you of some expenses you’d forgotten you could claim.
The oft-quoted rule regarding expenses is that to qualify as tax deductible they must be “wholly and exclusively for the purposes of the trade”. In simplified terms this means that if the expense was incurred for the business, and no personal benefits arise, then it can be deducted from the total revenue to reach the taxable profit. There are of course exceptions to this rule, as with every area of tax, so if you are unsure about a certain expense then you should seek professional advice.
Examples of allowable expenses include:
- Costs of goods sold – for example produce used in the making of meals by a restaurant, or stock bought for resale in a shop
- Rent – be it an office or retail unit
- Equipment bought for the business, for example computers and furniture
- Costs related to your business premises such as gas, electricity and water
- Stationery and printing costs
- Software subscriptions
- Travel costs – e.g. train or plane fares or fuel (although not all travel costs are allowable, so care should be taken when claiming these)
- Legal and other professional services fees – e.g. insurance, solicitors fees, accountancy fees
- Staff costs – e.g. salaries or contractor fees
- Advertising or marketing – e.g. advertising in newspapers or providing free samples
One of the benefits of being self employed is the ability to work from home, saving on both commuting time and the costs of renting a dedicated business premises. If you work from home then it is possible to claim some of your home’s running costs as an expense against your revenue. Running costs can include; electricity, water, internet, telephone bills and rent (if you rent your home rather than own it). To calculate the proportion of these costs that relate to the business you need to take in to account the number of rooms used, and the time spent in those rooms, whilst working. This can be quite complicated, so HMRC provide a number of ‘simplified expenses’ flat rates. These are much easier to calculate and require far less record-keeping, however the amount that can be claimed is usually less too.
If filing your personal tax return is or has become too much of a burden for you, then do not hesitate to contact us and we’d be happy to help and make sure you are claiming all possible expenses.