One the 1st day of Christmas Moore and Smalley gave to me, tips for the self-employed, to make Christmas carefree!
Christmas is a time of giving, and Moore and Smalley are spreading Christmas cheer. Each day there will be a new blog and along the way some tax relief tips, but unfortunately, the tax man isn’t quite as generous as Santa! Read on over the next couple of weeks for Moore and Smalley’s 12 days of Christmas.
Top 10 allowable expenses for the self-employed
One question I get asked so often by sole traders is what expenses are deductible tax purposes. The basic rule to follow is that you can claim expenses that are wholly and exclusively for the purpose of carrying out your trade. The most obvious ones are cost of stock, and payroll costs.
However there are a number of other costs that are allowable as a deduction:
Home office costs
There are two options available to claim these costs:
- Simplified HMRC rate of £4 per week which is allowable without any backup information
- Apportion your home running costs, which includes expenses such as mortgage interest, utility bills, insurance, and cleaning. The simplest way to calculate the costs is work it out on how many rooms you have and the percentage of the time you use one or more of the rooms for business use. E.g. you use the office 50% of the time for business purposes and there are 5 rooms in the house. The allowable running costs would be 50% x 1/5 x total home running costs.
If you use your home phone and personal mobile you can claim a percentage of the cost based on how much you use for business. The best thing to do is to keep records of calls and mark down personal and business use, at least as a sample (for say 3 months) to prove to HMRC if they ask.
You can claim allowable business expenses for:
- protective clothing needed for your work
- costumes for actors or entertainers
You can’t claim for everyday clothing (even if you wear it to work) unless they are branded with your company name.
Typically this can include professional indemnity and public liability required to carry out your trade and is always tax deductible.
The costs of maintaining and hosting your web site can be claimed. The cost of developing the site is generally classed as capital expenditure so is treated differently.
Advertising, Marketing & professional fees
You can claim the costs of marketing and advertising as well as for magazines and subscriptions that are relevant to your work.
Any fees you incur for professional registrations or payments for legal work or accounting fees can all be allowed as a business expense.
Accommodation costs are tax deductible when they are incurred:
- Wholly and exclusively for the purposes of the trade or profession, or
- If there is mixed business and private use and it is possible to claim an identifiable proportion of an expense as business related.
There are two different methods available for claiming mileage / travel costs. Once you have chosen which method to use you must stick with that method for the life of that vehicle.
- Mileage rates – You simply keep a mileage log of all allowable business journeys, noting down the date of journey, purpose of journey and total number of miles. You can currently claim 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter as a business expense.
- Actual running costs less private element deduction – This is the more complicated option but can be more tax efficient, depending on your level of use. You need to keep a tally of all motor expenses which will include road tax, insurance, fuel, repairs, maintenance and breakdown cover. Also if you have bought your vehicle on a lease you can include the interest costs.
The key element is to then work out the percentage of your vehicle that should be disallowed because of private use. Technically you should keep a detailed mileage log of all work journeys and note the mileage at the beginning and end of the financial year. However as this is not always feasible it is acceptable to keep a mileage log for a ‘snap shot’ period (around three months) and work out the private element from this.
The only type of entertaining that is deductible for tax as a business expense is the entertaining of Employees. Please note that subcontractors/freelancers are not staff.
Entertaining clients, customers or third parties is always disallowable as a deduction for tax purposes
If you need to keep your skills and knowledge up to date then you can claim costs for training against your profits.
However, where the objective of the course is to learn a new skill or qualification, this cost is not allowable.