Being self-employed can often be trickier than working under an employer. Not least because all business expenses and taxes have to be calculated by yourself, rather than having taxes neatly deducted from your wages. However, being self-employed also has its benefits and allows you to run the business with your own ethos and practices.
Self-employed workers have further benefits still, as expenses can be claimed back in taxes. For example, purchases deemed necessary in the running of your business can be deducted from your tax bill.
These tax-deductible expenses you can claim include:
- Business premises expenses
- Expenses working from home
- Travel and accommodation expenses
- Salaries and benefits
This article will further expand upon what business expenses are, and how a self-employed worker can claim expenses.
The type of business expenses you can claim depends on where your place of operation is. A number of bills associated with running business premises can be written off. This includes:
- Electricity/lighting
- Cleaning
- Water charges
- Rent on the building
- General maintenance
However, any alterations to the building or the initial purchase of the building cannot be claimed back. This may instead be eligible for annual investment allowance or capital allowances.
What expenses can I claim if I work from home?
Similar business expenses are afforded to those that work from home. Allowable business expenses include:
- Your electricity bill
- Heating
- Mortgage interest
- Insurance costs
- Mortgage
- Council Tax
- Maintenance
- Water charges
This might seem like a tidy incentive to switch operations to your family home. After all, if it means all of the essential bills of a family home can be written off that would be incredible. However, this is not exactly how it works, as there are limitations.
You can only claim expenses for the room or rooms used in the business, and the time it is in use. For example, if you worked in a single room eight hours a day, five days a week, you could only claim expenses for that period of time, and for the square circumference of that room.
What type of insurance counts as a business expense?
Many business sectors require workers to take out specialised business insurance to cover them, and others at work. You can claim expenses for business insurance as part of your self-assessment expenses. Different types of insurance-related allowable expenses include:
- Public liability insurance
- Travel insurance
- Professional indemnity insurance premiums
- Personal trainer insurance
- Builders insurance
Can I claim travel and accommodation expenses?
Travel and accommodation are allowable expenses under certain circumstances. For example, a self-employed worker or sole trader could claim back if they have had to travel on a business trip. This would include expenses for any accommodation if they had to stay over.
You can also claim back expenses on your vehicle for any daily travel you do involving work, including commuting, or driving to different premises. Allowable business expenses include:
- Petrol
- Car Tax
- Car insurance
- Car repairs
- Car servicing
If the car is not exclusively used for business purposes, you can only claim back business expenses for a portion of its usage. This portion is known as business mileage. Business mileage should be tracked to work out how many miles you have driven for business purposes, separate from personal usage.
Business mileage and therefore allowable business expenses do not include commuting to work. Meals are not excepted unless they are breakfast, and or dinner, as part of an overnight trip. For meals to count they should also be within a reasonable price range. The cost of buying a vehicle is not tax-deductible but may qualify under capital allowances.
Can I claim office expenses?
Absolutely, you can claim business expenses for stationery and other office-related items. Specifically, items that are normally used for two years or less can be claimed. These include but are not limited to:
- Stationary - pens/pencils etc
- Postage materials
- Printing/ink cartridges
- Software used for less than two years
- Phone (business phone calls) and internet bills
- Subscription-based software - Video editing software for example
You can claim business expenses for items such as this. However larger items such as computers must be claimed under capital allowances.
Similarly stock and materials are tax-deductible when they are used as part of the business.
Is marketing, tax-deductible?
As marketing is almost essential for any business to survive, it can be written off as a business cost. This includes:
- Digital marketing costs
- Offline marketing
- Social media marketing
- Email marketing
- Directory listings
- Website costs
- Free giveaways
Marketing is a fundamental business cost and thankfully are some of the expenses you can claim.
Is clothing an allowable expense?
Clothing is an allowable expense so long as it is used for business purposes. Clothing that can be filed as business costs includes:
- Uniforms
- Protective equipment - work boots, hard hats, etc
- Costumes - for entertainers
However, everyday clothing, even if it is worn to work is not classified as expenses you can claim.
What staff costs count as allowable expenses?
You can claim allowable expenses for payments made towards staff. For example, you are able to claim staff wages as an allowable business expense. However, you as an employer are not able to claim tax relief from your own wage.
Other allowable expenses for staff include:
- Employer's National Insurance contributions
- Staff training costs
- Insurance costs and pension contributions
- Staff bonuses
- Childcare provisions
- Memberships to professional trade bodies
- Legal fees
What is the £1000 tax-free trading allowance?
When paying Income Tax on trading profits, you may be entitled to a tax-free allowance. If a Self Assessment tax return shows that your business has earned less than £1000, you are entitled to tax-free benefits. For example, you do not have to pay Income Tax or National Insurance contributions.
So, you may ask - how does affect allowable expenses? This means that if you benefit from the Income Tax-based trading allowance, you cannot claim back tax from expenses.
What is a self-employed capital allowance?
Much like smaller-scale office equipment such as stationery, businesses may require larger or longer-lasting equipment. These items are known as capital assets and are typically items such as:
- Plant machinery
- Business patents
- Buildings
- Computers and equipment
- Vehicles bought not leased
Any money spent on capital assets is deducted from your taxable profit. However, there is a limit on how much you can claim, which is known as your capital allowance.
Being self-employed means you, or your accountant has to file your Self Assessment tax return. You are wholly responsible for your Self Assessment tax bill, which can be a complex affair. However, knowing how to manage taxes can be extremely beneficial at the end of the tax year. This is because you may be able to claim tax allowable expenses.
Where your business operates is a large factor in predicting how much tax relief you may be due. For example, if you have a designated building space such as an office, you can claim certain business expenses. This includes business rates like electricity payments.
Similarly, when working from home you can claim things like lighting, and energy bills, as allowable expenses. Personal and business use is calculated to show a percentage of the use you can claim back. Council Tax can also be reduced by receiving a tax deduction at the end of the year.
Insurance policies can also be written off as allowable expenses. These include special trade insurance for builders and personal trainers for example. You can also claim business travel expenses on your Self Assessment tax return. Business travel does not include commuting to work, but does include overnight business trips and other business trips. Hotels, as well as a reasonably priced dinner and breakfast, can also be written off as allowable expenses.
Furthermore, office equipment is also known as allowable expenses. These include items such as stationery. Stock and materials are also included in Self Assessment expenses, provided they are used for business practices.
Marketing expenses can also be waived on a tax return. All formats of marketing including, offline and online marketing, are known as allowable expenses. There are also a number of staff costs, which can be marked as allowable expenses.
For example, wages, bonuses, training expenses, and more. Clothing used for specific purposes within the business is an allowable expense. For example, uniforms and protective equipment can be listed as self-employed expenses, for you or your staff.
Businesses that earn less than £1000 in profits are eligible for a free trading allowance. This means that if you earn less than this you do not have to pay tax. Specifically, you do not have to pay Income Tax or National Insurance. However, this also means that you cannot claim allowable expenses on your tax return.
Larger, pricier, and longer-lasting items, can be partially claimed back on a tax return as capital allowance. However, this is limited. These items known as capital assets include things like; plant machinery, buildings, and bought vehicles.