Allowable Business Expenses for Self-Employed
Claim allowable business expenses to reduce your tax liability
If you’re self employed and your annual income is more than £1,000, you must pay income tax via self-assessment. However, HMRC will allow you to deduct the cost of certain purchases from your profit, thus reducing the amount of tax that you owe.
To avoid paying more tax than is necessary, it’s important that you claim for your allowable business expenses.
For example; if your annual turnover is £50,000 and you claim £10,000 in allowable expenses, your taxable profit would be £40,000.
What are allowable business expenses?
Allowable expenses include purchases that are necessary for the running of you business;
- Office costs such as printing, stationery, software and your telephone or internet usage
- Travel costs including hotel rooms and bus or train fare (this does not include the cost of travelling to or from work)
- Motor expenses (insurance, fuel, parking etc)
- Clothing expenses such as protective clothing or uniforms
- Staff costs (wages)
- Things you buy to sell on (your stock)
- Financial costs including bank charges or loan interest
- Costs of your business premises (rent, electric , business rates)
- Advertising or marketing
- Training courses
Expenses like your mobile phone, which may be your personal and business phone, may also be included. Your accountant will apportion an appropriate amount in your self-assessment tax return.
If you’re not sure whether a business expense is an allowable expense, you should contact your accountant for clarification.
What allowable expenses can I claim if I work from home?
If you’re self-employed and have a home office or work from home, you can still claim for the above expenses. However, you can only claim for a portion of your utilities (heating, electricity, rent, internet or phone usage). For example, you cannot claim 100% of your heating bill for the year – HMRC would not consider this an allowable expense.
To avoid over or under claiming, you should speak with your accountant about the best way to work out the correct portion of your utilities.
We hope that you’ve found this article helpful. If you require any assistance with your self-assessment tax return, please get in touch. Our experienced team would be happy to help.