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Claiming expenses if you're self-employed

If you’re self-employed, your business will inevitably have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.

Example 1

Your turnover is £45,000, and you claim £15,000 in allowable expenses. You only pay tax on the remaining £30,000 - known as your taxable profit.

Note: Allowable expenses don’t include money taken from your business to pay for private purchases.

If you run your own limited company, you will need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.

Examples of expenses and benefits include:

  • Company cars
  • Health insurance
  • Travel and entertainment expenses
  • Childcare

Costs you can claim as allowable expenses

These include:

  • Office costs - e.g. stationery or phone bills
  • Travel costs - e.g. fuel, parking, train or bus fares
  • Clothing expenses - e.g. uniforms
  • Staff costs - e.g. salaries or subcontractor costs
  • Bought items that are sold through - e.g. stock or raw materials
  • Financial costs - e.g. insurance or bank charges
  • Running costs of your business premises - e.g. heating, lighting, business rates
  • Advertising or marketing - e.g. website costs

You can’t claim expenses if you use your £1,000 tax-free ‘trading allowance’. Your first £1,000 of income from self employment - this is your ‘trading allowance’

Costs you can claim as capital allowances

If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, e.g.:

  • Equipment
  • Machinery
  • Business vehicles, e.g. cars, vans, lorries

You can’t claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.

If you use cash basis

If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.

Using an item for both business and personal reasons

You must remember that you can only claim allowable expenses for the business costs and not for any personal reasons.

Example 2

Your mobile phone bills for the year total £250. Of this, you spend £160 on personal calls and £90 on business.

You can only claim the business element of the phone bill, which is £90 of business expenses.

If you work from home

You may be able to claim a proportion of your costs for things like:

  • Heating
  • Electricity
  • Council tax
  • Mortgage interest or rent
  • Internet and telephone use

You’ll also need to find a reasonable method of dividing your costs say by the number of rooms you use for business or the amount of time you spend working from home. Logging your business hours is a good way to keep a record of this.

Example 3

You have 5 rooms in your home, one of which you use only as an office.

Your electricity bill for the year is £500. Let’s assume all the rooms in your home use equal amounts of electricity or gas; you can claim £125 as allowable expenses (£500 divided by 4).

If you worked only one day a week from home, you could claim £17.86 as allowable expenses (£100 divided by 7).

Simplified expenses

You can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:

  • Vehicles
  • Working from home
  • Living on your business premises