When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. None of us want to pay more money than necessary to HMRC so use this guide as a starting point to ensure that you are claiming all you can.
There are two main types of expenditure:
Capital expenditure is money spent on items (assets) that will have a useful life to the business of more than one year, for example premises, furniture, machinery, vehicles, tools, IT equipment.
These costs cannot be included when working out taxable profits. However you can claim Capital Allowances which give tax relief for the reduction in value of the assets.
Revenue expenditure is the allowable expenditure which is incurred in the general day to day running of a business. This can include:
Cost of goods bought for resale and cost of producing goods that you are going to sell or use in providing your goods or services to sell.
Employee costs including wages, employers’ National Insurance, benefits for employees, agency fees, subcontractors and training.
Business premise costs including rent, rates, utilities, maintenance and cleaning.
A proportion of your home costs if you work from home, including a proportion of the costs for rent, rates, utilities, mortgage interest, maintenance and cleaning. The costs should be apportioned based on how much of the home is used for business and for how much time if not exclusively. Or you can claim a fixed rate of £4 per week (from 2013-14).
Office running costs like phones, mobiles, broadband, email hosting, postage, stationery, printing, software and small office equipment.
Vehicles including the running costs (petrol, car tax, insurance, repairs, MOT and servicing). If the vehicle is also used privately, you can only claim for a proportion of the cost in relation to how much the vehicle is used for business mileage. Business mileage includes trips to the bank, post office, business meetings and networking events.
Mileage can be claimed instead of a proportion of the running costs of a vehicle if your turnover is below the VAT threshold when you acquired your vehicle. Mileage rates are 45p a mile for the first 10,000 business miles a year, then 25p a mile.
Travel, meals and accommodation including hotels when an overnight stay is required for business.
Business insurance including public liability, professional indemnity and employer liability.
Marketing and advertising including PR, free samples, networking, website maintenance costs, printed ads and brochures.
Magazine subscriptions if they are relevant to your business or are for client reading in a reception area.
Professional fees are usually allowable. Legal fees for drawing up contracts and terms and conditions are allowable as are your accountant’s fees for completing the year end accounts. Architect and surveyors fees are also allowable.
Bank, credit card and other finance charges including overdraft charges, hire purchase interest and lease payments.
If the expense relates to business and personal cost, only the business cost is deductible but also if the expense is dual purpose then no deduction is allowed. Always remember to keep detailed records of your transactions and keep copies of receipts and invoices as back up (these can be the originals or scanned copies on your computer).