We are often asked: “What expenses can I claim now that I am self employed?”.
If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.
What isn’t an allowable expense?
There are some expenses however which, although genuine business expenses, are specifically excluded from tax relief, such as:
- Business entertaining including the VAT; (however input VAT on business entertaining of overseas customers is recoverable)
- Charitable subscriptions and donations, except to small local charities
- Political donations
- Costs and Fines for breaking the law
- Loan Capital Repayments
- Drawings, including payments for tax and National Insurance contributions
- Depreciation; capital expenditure is subject to the capital allowance regime
Expenditure on plant and machinery for most small businesses is likely to be covered by the annual investment allowance of up to £1 million.
What is an allowable expense?
- Office costs (i.e. stationery or phone bills, or business premises rent, repairs & maintenance)
- Travel costs (i.e. fuel, parking, train or bus fares, hotel rooms and sustenance)
- Clothing expenses (i.e. uniforms, or protective clothing needed for your work)
- Staff costs (i.e. salaries or subcontractor costs, employer’s National Insurance)
- Things you buy to sell on, i.e. stock or raw materials
- Legal and financial costs (i.e. solicitors/accountants fees, professional indemnity insurance or bank charges (including credit card charges)
- Costs of your business premises, for example heating, lighting, business rates (there are suggested formulas to calculate this if you are home based – please contact us for further details)
- Advertising or marketing, for example website costs, professional membership subscriptions
What is the Flat Rate Expense Scheme?
April 2013 saw the introduction of a new cash basis for calculating taxable income for small unincorporated businesses. One of the measures allows any unincorporated business to choose to use ‘flat rate’ expenses (also called ‘simplified’ expenses) for the following items of business expenditure:
- Expenses relating to business use of the home
- Fixed allowances for business mileage and business related vehicle costs*
- Costs when you live in your business premises (i.e. public houses, B & Bs)
This simplified process makes work-from-home expenses much easier to calculate. This simplified scheme is only applicable if you work from home at least 25 hours a month.
What are the ‘work from home’ flat rates for 2018/19 tax year?
- £10 per month if you work between 25 and 50 hours per month at home
- £18 per month if you work between 51 and 100 hours per month at home
- £26 per month if you work 101 or more hours per month at home.
What are the flat rate mileage expense rates for 2018/19 tax year?
- 45 pence per mile for cars and goods vehicles up to 10,000 miles per annum
- 25 pence per mile for cars and goods vehicles over 10,000 miles per annum
- 24 pence per mile for motorcycles
*You can still reclaim public transport costs when travelling solely for the course of your business, but these will need to be claimed at the actual cost as part of your allowable expenses.
What are the ‘living at your business premises’ costs?
These rates are based on the number of people living in the premises for ‘personal’ use i.e. not guests, or residents in a care home for example
The flat rate does not apply to telephone or internet expenses incurred in the home, however you will still be able to claim the business proportion of these bills by calculating the actual cost.
You can claim a proportion of the cost of things like council tax, heating, lighting, phone calls and broadband. You can use a flat rate to calculate your simplified allowable expenses starting from the 2013 to 2014 tax year. Remember however that the flat rate scheme is not right for everyone – it could be that calculating and reporting exact expenditure increases your tax relief.
This information is not exhaustive. Please contact any of our Tax Team if you have any queries about the allowability of specific expenses. It’s important that you take advice before making a decision as to which expense scheme is best for you.
Written April 2019.