Once I tell someone that I’m an accountant, the most common question I get is ‘is this claimable as a tax expense?’ So, as a helping hand, this blog provides information on 8 of the most common expenses that a self-employed person can or cannot deduct for tax purposes.
Broadly speaking, you can deduct from your turnover all the costs you incur for the sole purpose of earning business profits. For a full checklist go to hmrc.gov.uk/factsheets/expenses-allowances.pdf
- Gas, electricity, water, council tax. If you use your home to conduct your work you can claim a proportion of all your household bills, gas, electricity, water and council tax against your bill. If your office accounts for, say, 20% of your household space, you can claim 20% of the costs against tax.
- Mortgage. The interest portion of your mortgage repayments can also be claimed, again on a pro-rata basis.
- Broadband/phone. The same goes for broadband/phone costs. You can claim for any business calls. For line rental and broadband connection, a proportion of the cost can be claimed based on business use.
- Computer. If your computer is only used by the business, you can offset the whole cost. But if the family uses it half the time … you get the idea.
- Simplified expense claim. There is now a simplified expense allowance, which you can claim for if you self-employed and are working at least 25 hours on average a month in your business. You can find out more about this on the HMRC website. However, I recommend that you always work out your actual business expense claim and compare to what you are entitled to deduct under the simplified expense allowance. Quite often, the actual business expense claim works out more than the simplified expense allowance. Whichever method you use is entirely up to you.
- Clothing. You can’t claim unless you need specialist items that are entirely used for work. A self-employed journalist, for example, cannot claim for a new suit arguing he has to wear it as part of his work. But if, say, you are a self-employed tree surgeon, you can offset the full cost of steel toe-capped boots and a protective jacket.
- Entertainment. Taking clients out for lunch is a “non-allowable expense”, even if you spend the whole time talking about work.
- Motor Expenses. For the self-employed there are two ways to claim for your business motoring costs. Firstly, you can claim a business % – equating to the business use of your car or van or, secondly, claiming a mileage allowance in respect of your business miles. It is best to keep both sets of records and use the method that provides you with most tax relief.
- For claiming the business % of the tax allowable cost of the car, you will need to keep records of the type and cost of the car, cost of fuel, CO2 output, car tax, insurance, services, repairs and any loan or hire purchase interest. You will also need to estimate the % of business use compared to personal use of the car.
- For claiming a mileage allowance, if the vehicle you use is registered and owned by you personally and not your business, you can claim expenses for using your vehicle for work by claiming a mileage allowance. Business mileage is mileage travelled when doing your job. It can include travel to a temporary work place but it does not include commuting (travel between home and your normal place of work). As the tax-free mileage allowances change periodically, please check the HMRC website http://www.hmrc.gov.uk/rates/travel.htm.
- Example – You travel 1000 business miles in your 1.6L petrol car. Using HMRC figures as at 10/12/2014 you would pay yourself 45p per mile x 1000 miles, which is £450, and treat as a business expense. Part of the mileage allowance is a reimbursement for the cost of the actual fuel and therefore you are entitled to claim back VAT on the fuel element (if your business is VAT registered). The fuel element of the mileage allowance is currently 16p per mile. 16p per mile x 1000 miles gives a gross fuel element of £160. An easy way to calculate the 20% VAT is to divide the gross fuel element by 6: £160 divided by 6 is £26.67, which you can claim back on your next VAT return.
Author: Sharron Fletcher, Partner at RAE Business & Property. Sharron can be contacted on 07587 709008 or firstname.lastname@example.org .
Published on 22/02/2015