What business expenses can I claim?
Time and time again I come across people incorrectly claiming expenses through the business. Here is a summary of how to stay on the right side of H M Revenue and Customs (HMRC).
Anyone who is self employed will have costs associated with running their business. You might think that all of these costs would be acceptable to claim as an expense of the business and therefore reduce income and in turn lower the amount of tax you pay.
Unfortunately it is not that simple. What you think of as a business expense may not be what HMRC thinks of a business expense. Put simply, if an expense is solely for the business then you will probably be able to claim it, if it is partly to do with the business you will probably be able to claim part of it and if it’s a private cost then you won’t be able to claim it, regardless of where the money came from to pay for it.
In my experience there are 3 main areas where people get it wrong:
1) Motor expenses – you can only claim the element relating to the business. Motoring fines are not allowable for tax purposes at all. Travelling to work from home (i.e. to the office) is not allowable as a business expense and is classed as private travel. If you travel direct to customers or suppliers then this is business related and allowable. As a self employed person you can include a percentage of vehicle licenses, road recovery membership and repair costs to motor vehicles, based on the business use.
2) Entertaining – customer and supplier entertaining is not allowable for tax purposes. Therefore the business can pay for it, but it has to be added back when working out the tax due.
3) Clothing – only branded clothing can be classed as a business expense i.e. embossed clothing. A plain suit is not a business expense. Safety equipment necessary for the business is allowable, for example a hard hat and boots for a builder.
It is always worth getting an accountant to prepare your accounts so they can review expenditure and spot missing costs or remove ones that are not allowed. If you get it wrong, HMRC will add interest onto underpaid tax as well as penalties for submitting incorrect information.