Self-employed people must ensure they are claiming the maximum allowed tax relief. Taxes come out of profits, and it’s important to deduct various allowances so that you only pay HMRC (HM Revenue & Customs) what is due.
However, many newly self-employed people aren’t aware of the reliefs and allowances available to them. In addition, many can be claimed back for the past three years if you’re entitled to them and didn’t realise it. To successfully claim these back, you need to keep expenses, bills and mileage receipts as proof, and show that they are exclusively for business purposes.
Here are some of the main expenses small business owners should think about when it comes to claiming tax breaks.
Household expenses
If your business is based at home then you could claim some utilities, such as heating, electricity and water. Even if your use is relatively minor, it’s possible to claim back a portion of these expenses.
The claim must be based on the total household bills, the parts you’ve used and how long it was used for business purposes. HMRC will accept a claim of £4/week without proof, but if you claim more than this you will need to prove it with tangible evidence.
There must be the allowance for personal use of the room when not used for business purposes. If the room is used all of the time, then you would lose Capital Gains Tax relief on that area of the house. Limited companies can basically charge the company rent to cover the household expenses that are incurred when working from home. This generally leads to the need for additional proof and reporting, which could outweigh the benefits.
Phone, internet and office costs
If your company is based out of an office, rather than at home, then you can claim on all running costs, including repairs and maintenance. You can claim for business phone calls, but only a certain amount of line rental and broadband charges as it also must allow for personal use.
Computers, laptops, printers and software can be written off completely, if they’re only used for the business. Or you can claim a proportion if the usage is divided between business and personal use.
Travel expenses
If you regularly incur travel expenses, ranging from train tickets to car park charges when you visit customers or suppliers, then you must keep the receipts to recover the cost. However, travel from home to your office is considered as commuting and disallowed.
If you work from home, then travel to visit clients and suppliers is fully allowable. If you travel by car then you can claim a percentage of the total costs of running the vehicle, or for the mileage used for business. HMRC accepts mileage claimed at 45p per mile for the first 10,000 miles travelled, and 25p after that.
The mileage should cover the cost of the car, but if you choose to go for a percentage of the actual costs then there is likely to be tax relief available for the car’s value. If your car is environmentally positive with low emissions, then you will benefit from a better rate of tax relief.
Other costs
While the costs already listed cover the main allowances for your business, you can also recover the following
- Marketing, admin and IT costs: printed ads, online campaigns, website design and more can be claimed for. You can also claim for services used, such as solicitors and accountants.
- Stationery: costs for running a home office can be written off against your profits, including paper, ink and postage.
- Professional subs: tax relief is available on professional fees, subscriptions and membership fees if they are strictly necessary for your business.
- Insurance: business insurance (home insurance if your office is at home) and car insurance can be claimed.
- Staff: all employment costs for staff, including NI, wages, training and childcare can be claimed for.
- Training: sole traders can claim tax relief if they are updating an existing skill, but not if it’s a brand-new skill.
- Bank charges: all credit card and business bank charges are deductible.
- Stock: anything bought for resale or as materials is tax deductible.
- Bad debt: any amount included in the turnover figure, but has been written off as unrecoverable, can be claimed.
- Clothes: if you must wear a uniform or specialist clothing then you can claim for it.
To ensure you’re paying the right amount of tax to HMRC, it’s always best to consult an expert.
