When you are self-employed, as with other types of business, you will have various costs to keep your business running. Many of these expenses qualify for tax relief, which means you can deduct the value of these expenses from your profits before working out how much tax you owe.
what qualifies for tax relief?
You can claim tax relief on small and regular costs as ‘allowable expenses’. These are things like fuel for business use, staff costs, and advertising. More expensive items which you are likely to use for more than 2 years can be claimed as ‘capital allowances’.
If you rent property, we have a guide for rental expenses that qualify for tax relief.
You will have to report these expenses on your Self Assessment tax return. You can follow this link to read our tips on common mistakes to avoid.
You can deduct the full amount of these expenses from your profits before tax. If some of these expenses benefit you personally as well as your business, you will need to decide on a fair way to split the cost when submitting your records to HMRC.
Stationery and goods
You can claim expenses for things like:
- Phone and internet bills.
- Computer software your business uses for less than two years or which you make subscription payments for (otherwise claim capital allowances).
You can claim the cost of uniforms, protective clothing, and costumes for entertainers. You cannot claim for everyday clothing you wear to work.
You can claim for the costs of your stock (goods bought for resale), costs of raw materials, and the costs incurred directly for producing goods.
Rents, power and insurance
You can claim expenses for:
- Rent for business premises.
- Utility bills.
- Property insurance.
- Repairs and maintenance for business premises or equipment.
- Using your home as an office
If you use your home as an office, you will have to divide your costs either by the amount of the home used for business, or hours worked in the home.
Car and travel expenses
The following are allowable expenses:
- Vehicle insurance.
- Fuel for business use.
- Licence fees.
- Train, bus, taxi and air travel fares.
- Hotel rooms.
- Meals on overnight business trips.
You cannot claim fines or costs for traveling between work and home.
If you buy a vehicle for your business, you can claim this as capital allowance, usually in the form of writing down allowance.
Most costs relating to staff count as allowable expenses, such as:
- Employee salaries.
- Agency fees.
- Employer’s National Insurance.
- Business-related training courses.
You cannot claim for the costs of nannies and domestic help.
Legal costs and financial charges
You can claim costs for legal, professional and bank costs such as:
- Hiring accountants.
- Hiring professionals who provide services, like architects or surveyors.
- Overdraft and credit card charges.
- Interest on bank loans.
- Hire purchase interest.
- Insurance policies.
Any legal costs involved in buying property or machinery should be claimed using capital allowances, which we explain further on.
Marketing and entertainment
You can claim for:
- Advertising – such as in newspapers, mail advertising, free samples, website costs
- Subscriptions to trade or professional journals
- Professional organisation or trade body membership fees related to your business.
However, you cannot claim the following:
- Entertaining clients or suppliers.
- Gym membership fees.
- Payments to political parties.
Capital allowances are another kind of tax relief for businesses. This allows you to deduct a portion, or all, of an item’s value from your profits before working out how much tax you owe. Unlike allowable expenses, capital allowances are usually for items with a lifespan longer than two years.
This includes things like office furniture, computers and printers, tools, and equipment.
Most long-term items, except cars, bought by you for use in your business will qualify for Annual Investment Allowance. This allows you to deduct the full value of an item from your profits before tax for the tax year that the item was bought.
Is there a limit to this tax relief?
You can claim expenses according to the AIA until your total deductions for these long-term items reach the ‘AIA amount’, after which you will have to use ‘writing down allowances’ which are at only 18% or 6% of an item’s value.
The AIA amount has been set at £1 million.
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