Expenses if you’re Self-Employed

If you are self-employed you’ll no doubt realise that your business has a variety of running costs. Some of the costs will be deductible and will help you when it comes to working out your taxable profit. However, working out your expenses if you’re self-employed may not be as easy as it seems as there are only specific allowable expenses.

What Expenses Can I Claim as Self-Employed?

As a self-employed person you can claim the following costs as allowable expenses:

Advertising or marketing

• Newspaper advertisements
• advertisements in directories
• bulk-mail advertising
• cost of your website
• cost of professional or trade journals
• cost of membership of a professional organisation or trade body

However, you cannot claim for event hospitality or entertaining customers, suppliers or clients. Additionally, you cannot claim for a gym membership, payments to any political parties or donations to charity.

Business premises costs

• cost of your rent, security, insurance costs, rates (business & water) and power
• equipment such as computers and printers
• capital allowances (if you use traditional accounting)
• allowable expenses (if you use cash basis accounting)
• stationary, printer ink and cartridges, printing, postage, phone, mobile, internet and fax bills
• computer software if you have to pay to renew the licence
• maintenance or repair to your business premises and equipment

However, you cannot claim for any expenses or allowances associated with buying the premises.

Clothing expenses

• uniform or protective clothing
• costumes for entertainers and actors

However, ou cannot claim for clothing that you wear outside of work, even if you choose to wear the clothing for work.

Financial costs

• Hiring solicitors, accountants, architects, surveyors and professional indemnity insurance premiums
• leasing payments, bank charges, credit card charges, hire purchase interest, interest on business and bank loans, leasing payments and alternative finance payments such as Islamic finance.

However, you cannot claim for the legal costs associated with buying machinery or property, or fines if you have broken the law.

Materials you purchase to sell on

• raw materials, stock for resale
• direct costs associated with producing goods

However, you cannot claim if your goods or materials that have been purchased for private use. Additionally, you cannot claim for depreciation of any work equipment.

Office costs

• • stationary, insurance costs, rates and rent
  • allowable expenses (if you use cash-basis accounting)
  • capital allowances (if you use traditional accounting)

However, you cannot claim for non-business use of your premises, other resources or the phones.

Staff costs

• bonuses, staff and employee salaries, subcontractors, pensions, benefits, employer’s National Insurance, agency fees

However, you cannot claim for domestic help or carers.

Travel costs

• parking, vehicle insurance and licence fees, fuel, repairs and servicing, breakdown cover, hotel rooms, taxi, air, train and bus fares, meals on overnight trips and hire charges
• If you use traditional accounting, you can claim the cost of a business vehicle as a capital allowance
• If you use cash-basis accounting, you can claim the cost of a business vehicle as a capital allowance but only if you are not using what is known as ‘simplified expenses’

However, you cannot claim for travel between your home and place of work, fines, or non-business travel or driving costs.

What are Capital Allowances?

Capital allowances are expenses that you incur as part of your business. These expenses can either be related to capital expenditure or revenue (trading) expenses. If an item has a last benefit for your business, such as longer than a year it will be known as a capital expenditure.

Capital allowances are a way of getting tax relief on certain types of capital expenditure. They tend to be treated as a regular business expense and will, therefore, reduce the taxable profit.

What are Simplified Expenses?

Simplified expenses are a specific way of calculating some business expenses. They are calculated using flat rates rather than working out your real business costs. You do not have to use simplified expenses but if you do you may find that they suit your business.

Who can use simplified expenses?

Simplified expenses may be used by sole traders and business partnerships. The only business partnerships that can use simplified expenses are those that have no companies acting as a partner.

How to use simplified expenses

To use simplified expenses simply record:

• All of your (business) miles for your work vehicles
• All of the hours that you work from your home
• The number of people who live at your business premises over a 12-month period.

When the tax year comes to and end you will need to use the flat rates for:

• All of your work vehicles
• Working from home
• Living at your business premises

Calculating these rates will allow you to work out your expenses. These amounts need to be included in your total expenses when you complete your self-assessment tax return.