When you are self-employed, you only need to pay taxes on your profit. This means that any operating expenses can be subtracted from your turnover to work out your taxable profit.
However, this doesn’t mean you can claim everything as a business expense. HMRC has clear rules on ‘allowable expenses’, and it’s important to understand what they are. Submitting incorrect or false claims can result in penalties.
If you have an accountant, they can work with you to ensure all your business expenses are covered and you’re paying the correct tax amount.
What if you don’t have an accountant? What can you claim as tax-deductible expenses?
Self-employed accounting methods
There are two accounting methods for the self-employed. These are:
Traditional accounting – Your tax records are based on your invoice and billing dates.
Cash basis accounting – Your tax records are based on when you received or spent the money.
Once you select one of these methods, you’ll need to stick to it. Typically, if you submit your own tax returns and don’t have an accountant, it’s usually easier to choose a cash basis accounting method.
Calculating your expenses
When you’re completing your tax return, you may be given the option to provide a single amount for your allowable expenses. Alternatively, you can submit a detailed breakdown.
Regardless of the option, you must work out all of your expenses accurately in case HMRC queries your figures, even if you’ve chosen to submit a single amount.
Today, cloud-based accounting solutions, such as Sage, QuickBooks, and Xero, make tracking and reporting expenses simpler than ever. Many platforms even allow you to upload copies of your receipts from your phone.
Here are some of the most common self-employed allowable expenditures:
You cannot claim for buying a property. However, you can claim expenses for things like:
- utility bills
If you work from home, you can include a proportion of your utility bills as an expense. Depending on your circumstances, you can either:
- find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home; or
- calculate your allowable expenses using a flat rate based on the hours you work from home each month
You can claim for all the things you need to run your business. For example, this can include business stationery, printing costs (including printer ink), postage and software (including any monthly subscriptions to online software).
You can also include business equipment. For example, computers and printers. However, how you claim for these does depend on which method of accounting you’re using (traditional or cash basis).
Find out more about claiming office expenses when you are self employed on the gov.uk website.
You can claim for all business-related travel costs. For example:
- vehicle insurance
- repairs and servicing
- hire charges
- vehicle licence fees
- breakdown cover
- travel to business meetings
- train, bus, air and taxi fares
- hotel rooms on overnight business trips
- meals on overnight business trips
You cannot claim for travel to your business premises from home, personal trips and fines. However, if a journey includes part of a personal trip, you must be able to separate this out.
When it comes to using your own car/van travelling for business, many people find it easier to use simplified expenses instead of calculating the actual running costs associated with the company.
Find out more about claiming travel expenses when you are self employed on the gov.uk website.
Food and entertainment
You can’t claim for entertaining clients, suppliers and customers, or event hospitality.
You also cannot claim for your lunch or dinner on an ordinary day. However, if you’re occasionally making a business journey outside your regular pattern, you can claim “reasonable” food costs. HMRC’s definition of “reasonable” term isn’t very descriptive, so we recommend avoiding any five-star restaurants and sticking with meal deals and pub food (minus the alcohol) to be safe.
Stock and materials
If you need to buy products to sell onto your clients, or materials to make products, these can all be claimed as expenses.
Insurance and legal costs
Professional fees from solicitors, surveyors, or accountants, can be included as a cost in your calculations.
Business insurance, public liability insurance and professional indemnity insurance can also classified as a business expense.
If you are a member of any trade bodies or receive professional journals or magazines related to your business, these can also be classified as an expense.
Anything you do to promote your business can be put through as a business expense. For example:
- Digital advertising
- Design services
- Website services
- Email campaign costs
- Print adverts
- Free samples
- Directory listings
Get the best return
Working with an accountant is the best way to ensure all your business expenses are covered and you’re paying the correct tax amount.
At Cutter & Co we have been dealing with individuals and owner-managed businesses for over 30 years. In that time have gained a wealth of knowledge on both common and not so common tax issues.
We’re registered with the Chartered Institute of Tax (CIOT) as a firm of Chartered Tax Advisers. Therefore, our clients can be confident that they are getting the best possible advice.
If you’re still unsure if you need an accountant for your business, feel free to call us on 0121 550 8525. We’ll be happy to talk you through some options based on your individual circumstances. Alternatively, send us a message using the form on our contact us page.