What is an allowable expense?
If you are self-employed, you can deduct some of your business expenses to work out your taxable profit. These expenses must be “allowable expenses” as laid out by HMRC.
HMRC allows you to deduct the costs of certain purchases that are necessary to run your business. These costs are allowable expenses, they can be deducted fully from your profit. Allowable expenses are essential business costs that are NOT taxable.
Costs you can claim as an allowable expense :
✓ stationery, phone bills, subscriptions, postage costs, printer ink,
Travel costs (business travel)
✓ fuel, parking, train/bus fares, hire charge, servicing,
✘ travel to/from home and work, fines,
✓ uniforms, necessary protective clothing.
✘ everyday clothing that you wear to work,
✓ expenses on salaries and benefits, subcontractor costs, cost of training employers, employee childcare provision, insurance and pension for employees, employer’s Insurance number,
✘ own wages, salary, other money drawn from the business, own National Insurance Number and income tax, own pension costs, own life insurance,
Things you buy to sell on
✓ stock, raw materials,
✘ for goods or materials bought for private use or depreciation of equipment,
✓ costs of your business premises, heating, lighting, business rates, cleaning, general maintenance, security,
✘ initial cost of buildings, alternations, improvements (however, it could qualify as annual investment allowance or capital allowance),
✓ liability insurance, professional fees (e.g., accountant, solicitor), bank, overdraft, credit card charges, interest on bank and business loans,
✘ fines for breaking the law, for repayment of loans, overdraft and financial arrangements,
Advertising or marketing
✓ website costs, newspaper advertising, free samples, mailshots, directory listings,
Training courses (related to your business)
✓ refresher courses, any education expenses related to maintaining or improving skills for your existing business,
✘ cost of classes to prepare for new business.
If the purchase is a capital asset e.g., computer or machinery, they are claimed under different rules called capital allowances. You can claim capital allowances, when you buy assets that you keep using in your business for a prolonged period – plant and machinery
✓ items that you keep using in your business e.g., computers, software, cars,
✓ costs of demolishing plant and machinery,
✓ parts of building considered integral, known as ‘integral features’ ,
✓ fixtures e.g. fitted kitchens or bathroom suites,
✓ alternation to a building to install other plant and machinery (does not include repairs),
✓ start-up costs,
✓ renovating business premises in disadvantaged areas of the UK,
✘ things you lease – you must own them,
✘ buildings, including doors, gates, shutters, main water, and gas systems,
✘ land and structures,
✘ items used for business entertainment.
If you use something for both personal and business reasons, you can only claim the business part of the expense.
- Mobile phone bill
If your bill is £100/month and you used 30% for business calls and messages and the other 70% for personal use, you can only claim £30 as a deduction.
- Working from home
Only for areas of your home you use for business.
Working from home
Expenses you can claim when you work from home:
- Council Tax,
- Mortgage interest or rent,
- Internet and telephone use.
You will not be able to write off all your bills, only the proportion which is used for business.
E.g., If your property is 200sq m and you use 40sq m (which is 20% of all the area) for 5 days a week out of 7 (71% of the week) and your heating bill is £100. You can claim £14.2 tax relief on your heating bill.
£100 x 0.2 x 0.71 = £14.2
If you work for 25 hours or more a month from home, you may be able to use HMRC’s simplified expenses system or if you work from home because of Coronavirus you can claim working from home allowance.
Working from Home allowance
✓ if you are required to work from home on a regular basis either for all or part of the week;
✓ if you are required to work from home because of coronavirus (COVID-19);
✓ you can only claim the part of your bill that relates to your work.
✘if you choose to work form home.
You can either claim tax relief as a working from home allowance, which is £6 a week form 6 April 2020 (no evidence needed). Or calculate the exact amount of extra costs you’ve incurred above the weekly amount (evidence needed).
If you choose to claim tax relief as a working from home allowance, you will get tax relief on the rate at which you pay tax.
|Tax Relief on £6|
|Tax Rate||Per week||Per year|
HMRC’s simplified expenses system
There are flat rates that can be used for vehicles, working from home, and living on your business premises. You are not required to use simplifies expenses if you decide it suits your business.
✓ goods vehicles,
✘ cars designed for commercial use,
✘ vehicles already claimed as capital allowances.
Once you use the flat rates for a vehicle, you must continue to do so as long as you use you use that vehicle for business.
You can claim all other travel expenses and parking on top of your vehicle expenses.
Also, 5p per passenger per business mile for carrying fellow employees in a car or van on journeys which are also work journeys for them.
|Vehicle||Flat rate per mile with simplified expenses|
|Cars and goods vehicles first 10,000 miles||45p|
|Cars and goods vehicles after 10,000 miles||25p|
e.g. If you have driven 13,500 business miles over the year by car and 1,500 business miles over the year by motorcycle in total, you can claim £5,735.
10,000 miles car x 45p = £4,500
3,500 miles car x 25p = £875
1,500 miles motorcycle x 24p = £360
£4500 + £875 + £360 = £5,735
Working from home (only if you work for 25 hours or more from home)
✓ you do not need to work out the proportion of personal and business use for your home;
✘ does not include telephone or internet expenses (you can claim the business proportion of their bills by working out the actual costs).
|Hours of business use per month||Flat rate per month|
|25 to 50||£10|
|51 to 100||£18|
|101 and more||£26|
e.g. Over the 12 months, you worked for 110h over 9 months, and 30h over the remaining 3months, in total you can claim £264
9 months x £26 = £234
3 months x £10 = £30
£234 + £30 = £264
- Living at your business premises
- ugest homes,
- bed and breakfast,
- small care home.
- You can use simplified expenses instead of working out the split between what you spend for your private and business use of the premises.
- With simplified expenses you calculate the total expenses for the premises. Then use the flat rates to subtract an amount for your personal use of the premises, based on the number of people living on the premises and claim the rest as your business expenses.
|Number of people||Flat rate per month|
e.g. If you run bed and breakfast and live there entire year. And both of your children are at university for 9 months a year but come back to live at home for 3 months in the summer. The total you can claim is £5,100
9 months x £350 = £3,150
3 months x £650 = £1,950
£3,150 + £1,950 = £5,100
How to claim?
In order to claim tax relief, you must file a self-assessment.
The current tax year (as of the publishing date) runs from the 6th of April 2020 to the 5th of April 2021 and repeats each year with the same concurrent dates. The deadline to submit your self-assessment is the 31st of January each year and the earliest you can start your self-assessment is the 6th of April after the tax year has ended.
You need to keep records of all your business expenses as proof of your costs.
Add up all allowable expenses for the tax year and put the total amount in your self-assessment tax return.
If you require assistance to do so, please do not hesitate to get in touch.