Being self-employed in the UK means you have to deal with your income and expenses to HMRC and pay the right amount of tax. But not all expenses are equal. Some are allowable, which means you can subtract them from your income and lower your tax bill. Others are not allowable, which means they are either personal or unrelated to your business and you must pay tax on them. How do you know which expenses are allowable and which are not? How do you claim them and what proof do you need?
That’s what this blog post is all about. We will show you what expenses are allowable for UK self-employed people, how to claim them, and what evidence you need to keep. We will also give you some examples of common expenses and how to sort them out. Whether you work as a sole trader, a freelancer, a contractor, or a partner in a business, this blog post will help you get a grip on your expenses and save money on your taxes.
Allowable and disallowable expenses
Here are some examples of allowable and disallowable expenses for UK self-employed people:
- Travel:
- You can claim the cost of traveling to and from your business premises, client meetings, or other work-related destinations. This includes public transport fares, mileage allowance, parking fees, tolls, etc.
- You cannot claim the cost of traveling between your home and your regular place of work, unless your home is your main or only place of work. You also cannot claim the cost of personal or non-business travel, such as holidays, family visits, or leisure trips.
- Equipment:
- You can claim the cost of buying or renting equipment that you use for your business, such as computers, printers, phones, tools, machinery, etc. You can also claim the cost of repairing or replacing equipment that is damaged or stolen.
- You cannot claim the cost of equipment that you use for both personal and business purposes, unless you can separate the usage and only claim the business portion. You also cannot claim the cost of equipment that you already own before you start your business, unless you transfer it to your business at market value.
- Advertising:
- You can claim the cost of advertising your business, such as online ads, flyers, brochures, banners, etc. You can also claim the cost of creating and maintaining a website for your business, such as domain name, hosting, design, etc.
- You cannot claim the cost of advertising that is not related to your business, such as political or charitable donations, sponsorships, or gifts. You also cannot claim the cost of advertising that is illegal, offensive, or misleading.
These are just some examples of allowable and disallowable expenses. There are many more categories and rules that apply to different types of businesses and situations. For more information, you can check out the [HMRC website] or consult a professional accountant.
How to claim allowable expenses
To claim allowable expenses, you need to keep records of them and include them in your self-assessment tax return. You can use online software or apps to help you track your income and expenses throughout the year. You can also use spreadsheets or paper records if you prefer.
You need to keep receipts, invoices, bank statements, mileage logs, or any other evidence that shows the amount and purpose of each expense. You need to keep these records for at least five years after the deadline for filing your tax return.
You can claim allowable expenses in two ways: by using simplified expenses or by calculating your actual costs.
- Simplified expenses: This is a method that allows you to use flat rates for some common expenses instead of working out your actual costs. For example, you can use a flat rate of 45p per mile for the first 10,000 miles of business travel by car or motorcycle in a year (25p per mile thereafter). You can also use flat rates for working from home or living in your business premises. Simplified expenses can save you time and hassle but may not always give you the best result.
- Actual costs: This is a method that requires you to work out the exact amount of each expense that you incur for your business. For example, you can claim the actual cost of fuel and maintenance for your car or motorcycle if you use it for business travel. You can also claim the actual cost of utilities and rent if you work from home or live in your business premises. Actual costs can give you a more accurate result but may require more work and records.
You can choose whichever method suits you best for each type of expense. However, once you choose a method for an expense category (such as travel), you have to stick with it for the whole tax year.
Conclusion
As a self-employed person in the UK, you need to know what expenses are allowable and how to claim them correctly. This can help you reduce your taxable income and pay less tax. It can also help you avoid penalties and audits from HMRC. We have given you some examples of allowable and disallowable expenses, and explained how to claim them using simplified expenses or actual costs.
If you have any questions or need more advice, please feel free to contact us or leave a comment below. We are always happy to help you with your tax matters.
Thank you for reading and stay tuned for more blog posts from us.
