A Guide to Self Employed Expenses
FACT: Self Employed Expenses can be confusing
“Can I claim for the computer I just purchased?”
“I travel to my customers – how do I reclaim for fuel?
“I took a customer out for lunch – is it tax deductible?”
These are just some of the self-employed expenses related questions that we’re asked on almost a weekly basis. So, it’s safe to say that there is a LOT of confusion around what you can (and can’t) claim against your tax bill.
But is it any wonder, when the official advice from Gov.uk contains baffling information like this…
If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business. You cannot claim capital allowances if you use your ‘trading allowance’
If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance – all other items you buy and keep for your business should be claimed as allowable expenses.
Not exactly helpful! So let’s ban jargon and go for the simple approach…
Introducing ‘Simplified’ and ‘other’ self employed expenses:
There are two groups of expenses you need to understand – simplified expenses (which includes motoring expenses and bills for working from home) and other expenses (which covers everything else – such as your mobile, travel and training).
Simplified self employed expenses
Simplified expenses do what they say on the tin – they offer an easier way to work out how much you can claim on your self-assessment.
Working out exactly how much it costs to run and use your car, van or motorbike for business would be really complicated if you had to do the maths for things like depreciation, the business proportion of your petrol spend, insurance and so on.
Instead, the government allow self-employed business owners to simply claim by the mile (so you’ll need to keep a record of all of your business miles).
In your records, you should note: where you travelled to, how many miles you travelled and what the reason for travel was – such as a customer meeting.
NOTE: This DOES NOT apply for limited companies.
Cars & Vans – Up To 10,000 Miles per annum – 45p per mile
Cars & Vans – Over 10,000 Miles per annum – 25p per mile
Motorbikes – All mileage – 24p per mile
EXAMPLE: You drove 12,000 business miles in a year using your car. So you can claim…
10,000 x 45p = £4,750 … and … 2,000 x 25p = £500 – So: £4,750 + £500 = £5,250
The alternative to simplified expenses for your motoring would require calculating the exact business portion of your:
- Vehicle insurance
- Repairs and servicing
- Vehicle licence fees
- Breakdown cover
Working from home
Instead of adding up all of your allowable expenses in relation to your home (such as your council tax, electricity, gas etc.), those who work from home for more than 25 hours a month may find it easier to opt for simplified expenses.
Hours of Business Use each month: 25 To 50 – Flat Rate Expenses Claim Per Month – £10
Hours of Business Use each month: 51 To 100 – Flat Rate Expenses Claim Per Month – £18
101 Or More Hours of Business Use each month – Flat Rate Expenses Claim Per Month – £26
EXAMPLE: You work 30 hours a month for 6 months, and 120 hours a month for 6 months. So you could then claim:
£10 x 6 = £60 … and … £26 x 6 = £156 – So: £60 + £156 = £216
Key question: Should you use simplified self employed expenses?
While simplified expenses are, unsurprisingly, simpler than the traditional method of claiming expenses (and could save you time), they may leave you out of pocket.
Which method is right for you comes down to the amount you may lose by going with simplified expenses, and whether this loss would be balanced out by the time you gain.
Other Self Employed Expenses
The cost of running your mobile phone is tax deductible (both the contract, and the calls, data and other add-ons). However, it is ONLY the business proportion that you can claim.
You specify how much this is – for example 50% business use, 50% personal use. It doesn’t need to be exact (such as 33.657% business / 66.343% personal), but you should be ready to justify the percentages if asked by HMRC.
A good place to start is with your past three months bills. Using two highlighters, work your way through it to split personal from business use, and then add each up to see how the bill breaks down.
If you travel for business purposes, you can claim for ‘reasonable’ subsistence costs (e.g. food and drink). Pay attention to the reasonable part however (that rules out Michelin Star restaurants and champagne for breakfast!).
Travel & business mileage
Allowable expenses for travel and business mileage can include:
- Motor expenses – either a mileage allowance or proportion of your costs for business travel (see our explainer in the simplified expenses section)
- Train fares
- Bus fares
- Congestion charges
Key question: Can I claim for parking tickets/fines? The simple answer is no and maybe…
No – if they’re issued by the council (as you will have broken the law – and fines are not allowable expenses).
Maybe – if they’re issued by a private organisation!
All in all, just be careful where you park, and how long you park up for!
Accountancy fees are simple in relation to what is and isn’t allowable (at least officially). Sole trader or partnership accounts you CAN claim for; accounts for personal taxes you CANNOT.
However, if an accountant prepares both at the same time, it’s generally argued that the total cost is allowable, as the cost for preparing your personal return would be negligible as compared to that of your business accounts.
Here’s the one almost everyone thinks is allowable (and it’s absolutely not). Wining, dining and playing golf with your clients is not allowable (in fact, no ‘entertaining’ costs are deductible at all).
But this only applies to clients and third-parties – so if you want to book a team away weekend – do it (it’s tax deductible!)
REMEMBER: Figures related to client entertaining still need to show in your accounts, as it is indeed a cost to the business (just not one that you can get tax relief on!).
Clothing and uniform
Uniform costs ARE allowable, as is safety clothing that you need to carry out your work.
However, you can’t claim for your everyday wardrobe (so PJs for office days at home don’t count!).
Let’s finish with a simple one…
Keeping your skills up-to-date or need training to meet the requirements of a professional body? Allowable.
Learning NEW skills (i.e. skills not needed by the business or necessary for the ongoing development of the business)? Not allowable YET – the HMRC are in consultation for a review of this rule.
Clearly, getting your self employed expenses claims correct is essential and an important part of reducing your tax burden – but it is also a technical area which can trip you up if you get it wrong. Seek the advice of an expert who can help you.
Straight talking business advice from Yorkshire Powerhouse
Have you any questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:
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