The Chancellor’s Summer Statement looked to protect jobs by introducing a bonus for companies who bring back furloughed workers, as well as reducing VAT in the hospitality sector and increasing the Stamp Duty Land Tax (SDLT) threshold.
The ultimate guide to managing your self-employed business expenses
Whether you’re a self-employed contractor, freelancer or sole trader, you’ll know that running a business is expensive.
Buying the right equipment, arranging travel and even getting the right clothing doesn't come cheap.
There are lots of things you can claim for in your Self Assessment as a sole trader. This article will help you make sure you claim everything you're entitled to as a self-employed person.
What are business expenses?
In order to run your business effectively, you'll probably run into some costs along the way. These are known as 'business expenses'.
Business expenses are important because you can deduct some of these costs from your taxable profit at the end of the year.
If you bring in £30,000 in turnover and have £5,000 of business expenses, you'll only pay tax on the remaining £25,000.
Keep in mind that in order for an expense to be included, it must be what's know as an 'allowable expense'.
The following items are considered allowable expenses:
Office costs include things like stationery, phone bills and other items that you'll use for less than two years.
Costs of business premises include things like utility bills and rent – You're not allowed to include things like purchasing a property.
Travel costs include things like fuel, parking, or train tickets – You're not allowed to include travel to and from a single place of work.
Staff costs include things like wages, salaries, bonuses, and pensions.
Clothing costs include things like uniforms or personal protective equipment (PPE). You're not allowed to include clothing that you wear to work.
Legal and financial costs include things like credit card charges; overdraft fees; insurance policies; or hiring accountants, bookkeepers, solicitors, or surveyors – You're not allowed to claim for any legal fines.
Advertising and marketing costs include things like printed adverts and the cost of building a website.
Items that you only buy to sell on include things like raw materials or merchandise.
Here are some things to remember:
1. Keep a record of all your income and expenses
You need to keep an accurate record of all your income and expenses throughout the tax year because you could be asked by HMRC to provide evidence.
2. Write everything down
It isn't always possible to keep every receipt. Try to write down every transaction, the date it took place and what it was for. You might find it easier to use a business bank account, which will do most of this for you.
3. Keep your personal expenses separate
You can’t claim any personal expenses back, so make sure you keep them separate.
This will make completing your Self Assessment far easier later on.
Keeping a record of your income and expenses
In the good ol' days, the best way to keep a record of any business-related expenses was to stuff every receipt you had into a shoebox and ignore it until Self Assessment season came around.
As the deadline crept closer, you'd have to meticulously unfurl each and every one of them to work out what you could submit as an allowable expense.
Thankfully, things have changed. Although you can still do it this way, we'd recommend doing something a little more enjoyable with your time.
Types of proof include:
- Submitting paper receipts
- Printing off bank statements or chequebook stubs (Remember those?)
- Using digital records through an app
Accounting Apps and Open Banking
Technology has come a long way in recent years and there are now lots of apps available that you can use to track your income and expenses.
The way they work is simple: Connect your bank account, download your transactions and categorise them as either 'Business' or 'Personal' expenses.
You'll then allocate a category to each of your business expenses, ready for your Self Assessment submission.
We launched our purpose-built app, IN-SYNC Luna to help you do just that. IN-SYNC Luna helps you to manage your income and expenses quickly and easily as you go, rather than stressing about it at the end of the year.
The best bit? Using machine learning, we can help create intelligent rules-based to help you categorise similar future transactions automatically too.
If you’re self-employed, you might work in temporary workplaces from time to time. HMRC allow you to claim back travel costs outside the journeys to and from a fixed place of work (normal commuting).
If you use your car or van for personal and business travel, you will work out the percentage of time you spend doing each.
The portion of the time you spend on business-related travel is the figure you can use as a deductible expense figure on your Self Assessment tax return.
To claim your travel, you can choose between two options:
- Authorised Mileage Allowance Payments (AMAPS), also known as Simplified Mileage Allowance
- Full Receipted Expenses
Note: Once you decide which option suits you and your business, you must stick to it. Think carefully and ask for advice if unsure.
Simplified Mileage Expenses for vehicles
If you like the easy life, you might choose to use the simplified mileage approach.
This method means you can claim using a simple flat-rate figure per mile for any car, van or motorcycle expenses.
You need to keep an up-to-date log of any business mileage.
|Vehicle||Flat rate per mile with simplified expenses|
|Cars & Vans first 10,000 miles||45p|
|Cars and goods vehicles after 10,000 miles||25p|
Sound like too much work?
We thought so. Give our FREE mileage tracker app, LOGIT-IN, a try. It tracks your mileage automatically in the background for you.
Full Receipted Expenses
The full receipted expenses approach allows you to submit expenses for travel based on your running costs.
For example, if you have a company-owned work van have to pay to maintain the vehicle, there are certain things you can claim back.
These claimable expenses include:
- Your car or van, if you bought it that that tax year
- Any hire or lease purchase costs
- Rental fees
- Interest Payments
- Road Tax and Insurance Costs
- Insurance and Road Tax
- Cleaning and Other Maintenance Costs
Important: You should think carefully about what suits you. Once you’ve decided, you have to submit these expenses in the same way until you change your vehicle.
Do you use an Oyster Card for business travel? Great, you can include it within your Self Assessment.
To access a breakdown of your expenses, you can either use Transport for London’s ‘TFL’ App, manage your account online or request a report at any train station.
Other Travel Costs
There are additional costs that you can claim for too, so long as they were exclusively for business reasons.
• Car Parking Fees
• Congestion Charges
• Road Tolls
• Tracker Subscription
• Van Hire
Note: Any personal mileage, travel costs or fines and penalties can’t be included within your Self Assessment tax return.
Check out our dedicated travel expenses blog post if you still have questions about travel expenses claims.
Sometimes you might have to pay work-related travel, accommodation or food and drink costs while working. This is known as subsistence.
Subsistence costs happen when you are travelling to and from a client's workplace to complete work.
So long as you keep your receipt, HMRC let you claim these costs as 'legitimate allowable business expenses'.
As a sole trader, it's not unusual to work from home occasionally. Whether you are sending invoices, arranging appointments or catching up on other admin activity, you can claim an allowance to offset the costs.
- Simplified Monthly Rate
- Actual Proportion
Simplified Monthly Rate
If you spend more than 25 hours per month working from home, you can use HMRC’s simplified expenses scale.
If you want to report in more detail, you can use the actual proportion method. To do this, you’ll need to keep a record of all your household bills and follow the steps below to work out your claim:
- Work out the total amount you spend on running your home, taking into account the following:
- Mortgage interest
- Home insurance
If you spend £2,000 per month running your home and you have 4 rooms (not including your kitchen and bathrooms), but only use 2 for business, the calculation would look like this:
£2,000 / 4 = £500
£500 x 2 = £1000
Important: Once you decide to use the 'Simplified Monthly Rate' or the 'Actual Proportion' approach,
you'll need to stick with it. Not sure which one is right for you? We can help you with that.
There are so many expenses that you might not realise you could include in your Self Assessment.
Although this doesn't cover everything, this list should give you a better idea of what else you should include, if necessary.
Personal Protective Equipment (PPE)
Depending on what your business does, you might need different types of clothing and protective equipment. These can be included in your Self Assessment.
For example, you can include:
- High visibility clothing
- Safety boots
- Trade-specific gloves
- Hard hats
- Protective eyewear
- Work uniform with company logos
Any money you spend on washing your workwear is considered an allowable expense. You’ll need to keep a detailed log of these activities though, mainly if you can't get a receipt.
Tools, Equipment and Consumables
Any equipment you need to be able to do your job can be included in your Self Assessment. You can also cover the cost of maintaining them too.
These can include:
Accountancy and Interest Charges
You can include any chargers for accountancy or business loan interest that you are charged. So long as they are exclusively for the purposes of your business, they can be claimed for in your Self Assessment.
If you use a mobile phone just for work, you can claim the full cost in your expenses. Lots of sole traders use their phone for both personal and work use. Just work out what portion was work use and make sure you include it in your Self Assessment.
Computers / Laptops / iPads
Any devices that you buy for business use can also be included within
your Self Assessment tax return, but as with mobile phones, you’ll need to calculate the business use.
Stationary / Postage / Business Cards
You can claim for any stationery or postage expenses relating to your business, so long as you make sure you keep all of your receipts.
Training and Professional Fees
Any costs that you incur for you to continue performing your business duties are considered allowable expenses, so long as they are solely and exclusively for business purposes.
If you’re self-employed and somebody regularly carries out your administration, bookkeeping or secretarial work for you, they can invoice you for their services which will be treated as a business expense.
Any assets that you buy could potentially qualify as an Annual Investment Allowance (AIA). An AIA lets you write off up to £200,000 per year. It can be used for most assets bought by a business.
This includes, but isn't exclusive to:
- Office equipment
- Building fixtures
A car or van purchase isn't treated in the same way as an AIA. The figure you'll pay will depend on the vehicle’s CO2 emissions.
To claim back the maximum amount that you are entitled to, you will need to keep your records up-to-date.
You will need to keep a record of all of your expenses for up to six years after the Self Assessment, just in case, HMRC investigates you.
For help on keeping records for your tax return, you can see HMRC's guidesketch.