Every year the majority of self employed people in the UK are required to file a self assessment tax return. For those that do it online, the submission deadline is January the 31st each year and the 31st of October for those that file paper returns. Here is a look at the subject of business expenses and how they are included in annual returns.
What are allowable business expenses?
They are defined as costs that are incurred “wholly and exclusively” for the purposes of the business.
Who is entitled to claim them?
Any one who is registered as self employed with HMRC. Theses expenses can be written off against any income you earn in the tax year, thereby reducing the final amount of tax you pay.
What can you claim for?
Not all expenses are allowed, you can’t claim for personal expenses, and there are some business expenses that you can’t claim for. It is very important to separate business expenses from personal ones, and if there is something you use for both, you can only claim for the business use.
For example if you work from home you can claim for costs such as heating, electricity, council tax, mortgage interest, rent, internet & phone. However you have to calculate them, based on how much time you spend working at home and how much space you use when you are working. Then you have to figure out what proportion of your total house costs they account for.
Here are some of the business costs that you can claim as tax deductible expenses:
The cost of goods that you are going to sell or use in providing a service.
If you are in the construction industry, you can claim payments to subcontractors.
Staff costs such as wages, salaries and any other staff costs.
Travel cost including car, public transport, taxi’s and other travel expenses.
Premises costs such as rent, rates, power and insurance.
Office costs such as phone, fax, stationery and other office costs.
Advertising and business entertainment costs such as websites, social media.
Finance costs such as interest on bank and other business loans, bank and credit card charges.
Professional fees such as accounting, legal and other professional fees.
Here are some of the costs you cannot claim as tax deductible expenses:
The cost of goods or materials bought for private use.
Your own wages, drawings, pension payments, national insurance contributions.
The costs of buying, improving or altering premises.
Cost for entertaining clients, suppliers and customers.
Repayment of the loans or overdrafts, or other finance arrangements.
The costs of buying premises for your business.
Any payments to clubs, charities, political parties and so on.
How and when can you claim them?
When you complete your annual self assessment tax return, you are required inform the HMRC of your deductible expenses for the accounting period in question. This is when you make your claim.
If you are self employed, you have to keep records of your business income and expenses for your tax return, so throughout the tax year you should keep all your receipts. It can also be very helpful to record them as they occur in some form of bookkeeping / accounting software, or on a simple spreadsheet. This will save a lot of time and make your final calculations easier when it comes time to file your annual taxes.
If however you don’t want to work out your actual costs, you can use the simplified expenses table provided by the HMRC for that tax year. It has flat rates for expenses like like vehicles, working from home, or living on your business premises. Also you can check out the HMRC’s site for other tools and calculators to help with you self assessment submission.
