As a self-employed business person, you can claim certain things as business expenses and get tax relief on them. However, not all costs are deductible, so it’s important to know which ones you can claim on your tax return.
This guide will answer:
- How does HMRC decide who counts as self-employed?
- What can I claim for being self-employed?
- How do I calculate my expenses?
How does HMRC determine if I’m self-employed?
According to HMRC, a self-employed person runs their business for themselves and takes responsibility for its success or failure. Self-employed workers also aren’t paid through PAYE (Pay As You Earn) and don’t have the employment rights and responsibilities as employees.
You can find a complete list of definitions and examples to help you determine if you count as self-employed on HMRC’s website.
What can I claim for being self-employed?
Below we’ve listed the main expenses you can claim as self-employed.
You can claim various utility expenses, including:
- Phone, mobile, and internet bills
- Postage and stamps
- Printer ink and cartridges
- Computer software (if you use it for less than two years)
If you use business equipment like computers, printers and computer software for longer than two years, you may need to claim it as capital allowances. You can find more information on capital allowances on the government website.
You can also claim expenses for:
- Maintenance and repair of your business premises
- Utility bills
- Property insurance
You can’t claim expenses for buying or building your business premises.
If you run your business from home, you can include part of your home utility bills, but only the portion you use for business purposes. For example:
- You have four rooms in the house, and you use one as an office
- Your electricity bill for the year is £800 for the whole house, and each room uses an equal amount of electricity
- You can divide the bill by four to claim £200 allowable business expenses
If you work from home at least 25 hours a month, you can use simplified expenses, a standard monthly rate calculated by HMRC.
Stock and materials
For stock and materials, you can claim the cost of:
- Raw materials
- Direct costs from producing your goods
You can’t claim for goods or materials bought for private use or depreciation of equipment.
You can claim business-related car or van costs on your tax return, including:
- Vehicle insurance and breakdown cover
- Hire charges
- Servicing and repairs
The government has a separate simplified vehicle expenses flat rate that you can use. When it comes to business travel, you can also claim for:
- Travel by train, bus, plane or taxi
- Hotel rooms and meals during overnight business trips
- Travel for meetings and site visits
However, you cannot claim for:
- The cost of travelling between home and work (your business premises)
- Entertaining clients, suppliers and customers
- Event hospitality (hotels and meals for those attending your event)
Legal and financial costs
If you need to hire a financial or legal expert, like an accountant, solicitor, or surveyor, for your business, you can claim the cost as a business expense. You can also include:
- Bank, overdraft and credit card charges
- Interest on bank and business loans
- Hire purchase interest and leasing payments
You can’t claim repayments of loans, overdrafts, finance arrangements, or fines for breaking the law as business expenses.
What if my customer doesn’t pay me?
If you use traditional accounting (explained here), you can claim amounts of money you include in your turnover (money your business made) but won’t ever receive, called ‘bad debts’. However, you can only write off these debts if you’re sure your customer will never pay you back. Additionally, you can’t claim for:
- Debts not included in your turnover
- Debts related to selling fixed assets, such as land, buildings, or machinery
- Bad debts that are not properly calculated, i.e. you can’t just estimate that your debts are equal to 5% of your turnover.
If you use cash basis accounting, where you only record income you’ve actually received on your tax return, you can’t claim debts this way.
You can include the cost of business insurance, including:
You can claim marketing costs, including:
- Newspaper advertising
- Directory listings
- Free samples
- Website costs
You can include the cost of:
- Necessary protective clothing
- Costumes for actors or entertainers
You can’t include the cost of everyday clothing that you wear to work.
If you subscribe to trade bodies, professional membership organisations, or journals relevant to your business, you can claim it as a business expense.
For more detailed information on what you can claim, download our comprehensive guide on deductible expenses for sole traders.
How do I calculate my expenses?
When calculating your allowable business expenses, you need to add up your expenses in your Self Assessment tax return. It’s essential that you hang on to every receipt, invoice and bill statement to avoid missing out on a claim.
When completing your tax return, you may get the option to either give a single figure for all your expenses or share a detailed breakdown. If you choose to submit a total amount, you still need to work out your expenses correctly and share an exact figure.
While you don’t need to send in proof of expenses when submitting your tax return, it’s wise to keep records so you can show them to HMRC if asked.
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