Expenses If You’re 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. After all, you should only pay tax on your earnings, or profits, not on every penny that comes through your business. Moolr take a look at expenses if you’re self-employed.

The Simple Maths

To put it into clear context – if you have made profits of £50,000 in a business year but have run up £10,000 of expenses during that period, then you would only pay tax on £40,000. And for income tax, the first £12,500 is not taxable, so in effect you pay income tax on £27,500. Please note though that if you are a limited company, the rules are different.

What You Can Claim On

Naturally, you cannot claim anything you spend money on. But there are plenty of things you can claim on, so let’s take a look. Things you can claim on include office costs, including a wide range of items, from stationery to phone bills.
You can claim too for travel costs and clothing expenses, uniforms being the prime example of this. Staff salaries are deductible, the cost of stock, raw materials or anything you sell on to try and make profit is also on the list. A raft of other charges can be claimed, such as cost of premises, rent, any insurance or bank charges or more. Finally advertising costs can also be included as expenses.

Costs you can claim as capital allowances

If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, for example:

  • equipment
  • machinery
  • business vehicles, for example cars, vans, lorries

Working From Home

If you work from home, you can claim allowable expenses for certain business costs. One example are mobile phone costs, up to £200. Or, if you spend £150 on personal calls and £50 on business, you can claim for £50 of business expenses.
Also, you may be able to claim a proportion of your costs for things like heating, electricity, Council Tax, mortgage interest or rent, internet and telephone use. It is necessary that you calculate a logical amount to deduct. This involves working out your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

HMRC allow you to use a simplified expenses system if preferred that uses flat rates for many of these expenses. Check the HMRC site for further details on what you can claim.