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Newly self-employed? Do you know which expenses are
tax-deductible and can be claimed?
If you’re newly self-employed then you may not know that you can deduct some expenses costs to work out your taxable profit, as long as they’re allowable expenses.
While self-employed people are charged tax based on the amount of profit they've made in a tax year, there are a number of expenses you can claim that will lower your tax bill. HMRC allows you to deduct the costs of certain purchases that are necessary to run your business. These costs can be deducted from your profit, and by doing so, will reduce the amount of tax you'll owe. In general, unless something you buy for your business is a capital asset - such as a computer or machinery (which you claim for under different rules) - you can deduct its full cost when working out your taxable profits. You get immediate tax relief for the full amount.
Costs you can claim as allowable expenses include:
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office costs, for example stationery or phone bills
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travel costs, for example fuel, parking, train or bus fares
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clothing expenses, for example uniforms
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staff costs, for example salaries or subcontractor costs
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things you buy to sell on, for example stock or raw materials
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financial costs, for example insurance or bank charges
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costs of your business premises, for example heating, lighting, business rates
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advertising or marketing, for example website costs
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training courses related to your business, for example refresher courses
You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy something you keep using in your business, for example:
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equipment
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machinery
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business vehicles, for example cars, vans, lorries
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You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.
If you use a cash basis
If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.
If you use something for both business and personal reasons
You can only claim allowable expenses for the business costs.
If you work from home then you may be able to claim a proportion of your costs for things like:
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heating
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electricity
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Council Tax
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mortgage interest or rent
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internet and telephone use
You’ll need to 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.
Get in touch for further tax planning advice, allowable expense and if you require any further support with your bookkeeping/tax returns.
Disclaimer: The information contained in this article is intended to be a guide and is not intended to be exhaustive. No action should be taken on the basis of information contained herein without obtaining the necessary advice. No responsibility can be accepted for loss or damages occasioned to any person acting or refraining from acting as a result of the material contained herein.
