If you are one of Britain’s four million self-employed people, you will have to submit a self assessment tax return every year.
If you are self-employed, there are a number of tax expenses that you can claim to offset the business profits that you make. The rules can be long and complicated, but our guide explains the main tax allowances that you can claim if you are self-employed.
Allowable tax expenses
In order for expenditure to be allowable, it must be ‘wholly and exclusively’ for carrying on and earning the profits of your business. This means that the sole purpose for the expenditure must have something to do with your business.
HMRC do allow you to get some private benefit from the expenditure and still get tax relief for the amount spent for your business, as long as either:
- the private benefit was incidental and not the reason for the expenditure, or
- you can clearly identify and separate the expenditure between business and private purposes
You can deduct the full amount of your allowable business expenditure from your business income to work out your taxable profits.
Cost of Stock
The money you spend on stock for your business is an allowable tax expense. So, if you run a bookshop, the cost of buying books as stock is an allowable tax expense.
If you employ staff, the cost of their salaries can also be deducted from your business profits. Remember, however, that you cannot typically claim your own wages or drawings as a deduction.
You are allowed to deduct the costs of maintaining your business premises as a tax expense. These may include rent, rates, heating, lighting, repairs and insurance. You can also deduct the business part of these costs if you run your business from home.
Motor and Travel Expenses
If you are self-employed, you can deduct the cost of using your car, motorcycle or bicycle for business purposes. The most common method of claiming motor and travel expenses is to claim a fixed rate for each mile travelled on business, using HMRC’s standard, fixed mileage rates.
If you have taken out a commercial loan specifically for investment in your business, you can claim the costs of this finance as tax expenses (for example, the interest you pay on a bank loan.)
You can deduct the administrative costs of running your business, including advertising postage, stationery, telephone and fax.
If your business involves you joining a professional or trade body – for example if you are an surgeon or a chartered surveyor – you may be able to deduct the cost of joining the appropriate professional association. You may also be able to claim tax expenses for the purchase of trade or professional journals or subscriptions.