Allowable business expenses
You want to only as much tax as you have to, no more no less. This means that when you are submitting your self employed tax return, you need to know what you can, and what you can’t claim back. Let’s talk about what that means, and what you can deduct from your yearly tax.
What is an “allowable expense”?
This is a term used by HMRC to discuss expenses that you are allowed to deduct from your tax return. So for instance, you earn £50,000, and your expenses are £20,000. What this means is that you only have to pay tax on the remaining £30,000. This saves you a lot of money!
Let’s walk through which expenses are allowable according to HMRC.
If you work from home, things like the heating, the rent, the mortgages, and the electricity can potentially be claimed back. You will have to declare exactly what is used for work, and what is used for everyday life, but you could claim a lot of this back.
Pens, paper, printer toner, special software for your business. All the small details that you need to run your business effectively, you can claim back. This can be broad, so long as you are not using these programs and items for your home life exclusively, you can claim them back.
If you drive alot, need a van or travel generally, these are considered as expenses. The fuel you use, the hotel rooms you stay in and even part of the car you drive. Again, you cannot claim for journeys that are personal in nature, but everything that is business related is fair game.
No, not your new trainers…unless you are a runner. Many self employed workmen need special equipment to work properly. This can all be taken away from your tax return. This also applies to any uniforms, or outfits if you are an entertainer!
If you are employing people, then their salaries, any fees or benefits you give them can also be taken off the tax return. Again, the theme here is anything that is a business expense, you can claim back.
If you have left over stock, raw materials or production costs, these are all fair game too. Not claiming these can really eat into your profit margins.
Legal and Financial
Lawyers, accountants and anyone else who will help you with your business. This means that if you get an accountant to help you with your tax return, you can claim that back too!
This is a great one for entrepreneurs, since these costs are all considered as an expense that can be written off. Marketing is a huge part of a business, especially in the beginning. This means that your business has a better chance of survival early on!
By making sure that you are not overpaying your taxes, you will have more money in your pocket and your business. This will mean that in the years to come you can earn more, invest more and not have to worry so much. If you are unsure whether an expense you have would be regarded as tax exempt, then a good idea would be to get in touch with a local accountant and they will have all the answers, and potentially some new ideas about other savings you can make!