Self-employment is an increasingly popular working option. It allows UK entrepreneurs to take control of their own careers and benefit from favourable tax laws, to build thriving enterprises. If you are considering going self-employed, it’s wise to learn about allowable expenses, so you can increase your profit margins. Here is Turner Little’s guide to allowable expenses for self-employed workers.
Allowable expenses
Allowable expenses refers to reliefs that you can offset against your taxes, to cover the costs of running a business. You can use them to trim your outgoings, freeing up more capital to fund business expansion. To claim these expenses, you must keep proof e.g. bills, to show that they were incurred exclusively for business use when applying for them to HM Revenue and Customs (HMRC), and many can be backdated for up to three years. You can potentially claim the following allowable expenses.
Household bills
Do you run your firm from home? You qualify for relief on your household bills, such as electricity. You can claim up to £4 per week in household bills relief without offering proof of expenses to HMRC, but you will need evidence for claims that eclipse this threshold. Calculate your claim based on the total of your household bills, the duration employed for business purposes and the area it was used for.
It is wise, when making a claim, to include scope for personal use of the room to maximise your potential relief. However, you will lose Capital Gains Tax relief on this part of your property, if you use it for business purposes all the time. It can be advisable to set up your business as a limited company, so you can charge your business rent, which you can include in your claim as a household bill. As experts in this field, Turner Little can supply the services required to establish a limited company.
Office costs
You can claim back similar allowable expenses if you operate your enterprise from an office. This covers office running and repair expenses, maintenance costs and more. It also applies to any phone and internet-related costs, e.g. broadband charges and line rental, as long as they were incurred for business purposes. There are other expenses in this category, such as software, laptops and printers, although the amount of relief will depend on how often they were used as a part of our business.
Travel expenses
You may run up various expenses, e.g. train tickets etc., while travelling for business, but you can claim these back as allowable expenses. You will fall under this category even if you operate your business from home and travel out to meet clients regularly, but if you commute from home to your place of business, this latter cost will generally not quality. Always keep the receipts as evidence for your claim.
There are two ways of calculating travel expenses for cars. The first is for total costs involved in running the car, while the second is for mileage. HMRC allows you to claim mileage at 45p per mile for the first 10,000 miles, but at 25p after. You can use this second option to claim back the cost of your car as well. Under the first strategy, however, you can also get tax relief for the cost of the car. It’s advisable to go for vehicles with low Co2 emissions, as they qualify for the most advantageous rate of relief.
Miscellaneous expenses
The three biggest allowable expenses you can claim are for household bills, office costs and travel expenses, but there are various others that you qualify for when self-employed. This includes a myriad of allowances for administration expenses. This covers IT costs e.g. website design, solicitor fees, business-related insurance expenses, and fees/subscriptions for membership of professional bodies, if you firm is either legally required or finds it beneficial to hold this membership.
HMRC will also allow you to claim allowable expenses for financial costs. This covers accountants’ fees, bank and credit card charges and leasing, as well as hire purchase interest payments. This also allows any amount that you have included in your firm’s turnover total, but due to lack of payment has been written off as unrecoverable, to be classed as an allowable expense. HMRC further lets you deduct any materials or stock your purchase for re-sale as an expense. But ensure you record what stock you have remaining at the close of your latest accounting period, so you can get your full entitlement.
There are a range of other costs that can be classed as allowable expenses for you as a self-employed worker. One is stationary, which covers things such as pens, paper, postage and ink cartridges. If you hire employees, you can also recover various costs associated with doing so, including wages, pensions, national insurance contributions, childcare and training. Finally, should you or your staff require specialist clothing e.g. uniforms, for your business, this falls under allowable expenses too.
Expert guidance
There is a plethora of allowable expenses, therefore, that you can use to reduce your tax bill when you are self-employed, making this an even more attractive working option, However, in order to qualify for these reliefs, in some cases you will need to meet strict legal criteria, which is why it can be wise to hire a specialist to help you claim, so they can ensure you receive your firm’s full entitlement. As part of our corporate services, Turner Little can supply you with the excellent business and legal advice your company requires to ensure that you can streamline costs as much as possible.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider. You can receive our monthly newsletter by signing up using the form below.
