There are so many allowable expenses you can claim to legitimately reduce the amount of tax you pay. We’ve rounded up 12 Self Assessment expenses that you may be unaware of.
Running your own business isn’t always easy – especially where accounting is concerned. As a business owner, you’ll have a range of reporting regulations and requirements to fulfil for HMRC and Companies House on behalf of your company. But what some aspiring entrepreneurs may not realise is that, when you start your own business, you also need to register for Self Assessment.
Self-employed sole traders, limited company directors, shareholders, and LLP members are all obligated to send Self Assessment tax returns to HMRC every year – and based on their earnings, most individuals will need to pay Income Tax and National Insurance Contributions on their taxable income.
The amount you owe will vary dramatically, depending on how much profit you made the previous tax year. Fortunately, the UK Government appreciates that running your own business can be expensive. That’s why you’re allowed to deduct the cost of some of these business expenses from your profit, thus reducing the amount of tax you owe through Self Assessment.
To help you to start saving money, take a look at our list of Self Assessment expenses you can claim against your tax bill.
1. Office supplies
If you’re having trouble finding business expenses to claim on your Self Assessment return, you don’t have to look any further than your desk.
HMRC will allow you to claim a range of expenses pertaining to office supplies, including:
- Your desk phone
- Your mobile phone
- A fax machine
- Postage costs
- Business stationery
- Printing costs
- Printer ink and cartridges
- Any computer software that your business uses for less than two years
- Any computer software your business uses and makes regular payments to renew the licence
You can even claim for your laptop, tablet, or home computer – but only insofar as it’s used for business. That means if you have purchased a family computer in the previous tax year that you’re only using for business 50% of the time, you can only claim the cost of that computer as a business expense on a pro-rata basis.
For some bigger items like computers and expensive software, you may find you need to claim these expenses as capital allowances.
2. Donations to charity
Did you give money to charity last year? If so, you should be claiming those donations as Self Assessment expenses on your tax return.
All donations made by individuals to registered charities or community amateur sports clubs (CASCs) are 100% tax-free. This is called tax relief, and how it works depends upon how you choose to donate funds.
Typically, charitable donations are either made through:
- Gift Aid
- Directly from your wages or pension through a Payroll Giving scheme
- Land, property or shares
- Your will
This tax relief means that if you donated £1,000 to a registered charity last year, and you’re a higher rate taxpayer, you can claim back £250 of that donation on your Self Assessment form.
Charitable tax relief rules also apply to sole traders and partnerships, but not for donations made on behalf of limited companies.
3. Mileage costs
Do you travel as part of your business? You should be claiming a mileage allowance as part of your Self Assessment return.
If you drive a car or van for work, you can claim 45p off your tax bill for every mile travelled up to 10,000 miles. After that, the amount you can claim is reduced to 25p.
For example, if you drove 11,000 business miles last year, you’re allowed to claim £4,500 in Self Assessment expenses for your first 10,000 miles, and £250 for the other 1,000 miles – leaving you with the ability to claim £4,750.
Motorcycles are slightly less, at a flat rate of 24p per mile when using simplified expenses.
While you’re thinking about mileage permitted, it’s also worth looking at the other travel expenses you can claim on your Self Assessment return.
Allowable business expenses include:
- Vehicle insurance
- Repairs and servicing
- Hire charges
- Vehicle licence fees
- Breakdown cover
- Train, bus, air, and taxi fares
- Hotel rooms
- Meals on overnight business trips
That being said, it’s worth noting you cannot claim for non-business driving or travel costs, fines you incur while driving, or any travel between your home and your regular place of work.
4. Legal and financial costs
When calculating your Self Assessment expenses, you should also include any costs associated with hiring an accountant, solicitor, surveyor, architect, or any other professional you’ve paid to assist you.
Likewise, you can claim costs for professional indemnity insurance premiums – as well as a range of other bank and insurance costs. Allowable expenses include:
- Bank, overdraft and credit card charges
- Interest on bank and business loans
- Hire purchase interest
- Leasing payments
- Alternative finance payments such as Islamic finance
If you’re using cash basis accounting, be aware that you are only allowed to claim up to £500 in interest and bank charges on your Self Assessment form.
You’re not allowed to claim any legal costs associated with buying property or machinery, although if you use traditional accounting, you can claim for them as capital allowances instead. Similar to travel expenses, you are also not permitted to claim any legal or financial costs you’ve been forced to incur by breaking the law.
5. Unpaid invoices
This is one of the most beneficial (and unused) Self Assessment expenses you should be claiming as a business owner. If you are using traditional accounting, HMRC allows you to claim for any amount of money included in your turnover that you aren’t planning to receive. This is known as a “bad debt”, and the only real prerequisite for including it in your expenses is that you must be sure that these invoices will never be recovered from a customer in the future.
You aren’t allowed to claim for any unpaid debts that:
- Are not included in your turnover
- Are related to the disposal of fixed assets, such as land, buildings, or machinery
- Are not properly calculated
It’s also worth noting that bad debts cannot be claimed on your Self Assessment form if you’re using cash basis accounting. This is because you’ve not received the money from your debtors and because cash basis accounting only records income on your return that you’ve actually received.
6. Marketing costs
Another Self Assessment expense that business owners often forget to claim is the cost of marketing their business.
HMRC will allow you to claim business expenses for:
- Any advertising you’ve done in newspapers or directories
- Bulk mail advertising (or “mailshots”)
- Any costs associated with free samples you’ve produced and distributed
- Website hosting and maintenance costs
Yet again, there are a few exceptions to the rule. You are not permitted to claim for entertaining clients or suppliers, or event hospitality expenses as part of your annual Self Assessment return.
You’re not allowed to claim the contents of your entire wardrobe as an allowable expense, but there are certain items of clothing you can claim to reduce your Self Assessment tax bill at the end of each financial year.
Permitted clothing expenses include:
- Work-related uniforms
- Protective clothing needed for your work
- Costumes for actors or entertainers
Unlike travel expenses, you’re allowed to deduct the entire cost of work-related clothing from your profits on your annual tax bill.
Unfortunately, you can’t claim for everyday outfits that you choose to wear to work. To qualify as a business expense, they’ve got to be necessary, work-specific items of clothing.
8. Staff costs
If you employ permanent workers, seasonal employees, or contractors to help you run your business, you can claim a wide range of expenses associated with their employment when filing your Self Assessment return, including:
- Employee and staff salaries
- Agency fees
- Employer’s National Insurance
- Business-related training courses
There are a couple of staff costs HMRC does not view as a permitted business expense. For example, you are not allowed to claim costs associated with a nanny or childminder as an expense.
Are you subscribed to any professional bodies or trade publications that directly feed into your job? If so, then you can claim the costs of those subscriptions as Self Assessment expenses.
Permitted expenses include a subscription to any trade professionals or academic journals. Likewise, a subscription or annual membership of a professional organisation or a union will also apply as a permitted expense.
Please note that any payments you make to a political party do not count as claimable subscriptions. Likewise, you can’t claim personal subscription expenses like a gym membership or a glossy magazine.
It’s also worth noting that you should not claim donations you’ve made to a charity as a subscription – even if you’re donating on a subscriber-level membership. These expenses can be tallied up as charitable donations, which have their own set of rules.
10. Your mortgage and utilities
If you work from home, you’ve got a whole range of Self Assessment expenses you should be claiming – although, just like your family computer, there are a couple of crucial caveats you need to bear in mind when claiming home expenses.
You can claim a proportion of your gas, electric, water, broadband and telephone bills as allowable expenses when working from home. However, you must calculate how much of each bill actually applies to your business.
For example, if you work from a five-room house (kitchens and bathrooms do not count as ‘rooms’), and one room is used exclusively for business purposes, you can claim 20% of your annual bills as Self Assessment expenses on your tax return. The same rules apply to your mortgage interest (but not capital repayments) or annual rent costs.
If the room serves another purpose (e.g. a spare bedroom) or you only work from home one day a week, for example, you need to apportion the costs associated with that room according to business use. HMRC does not provide exact guidance on how this should be done – you simply need to apportion the costs between business use and private use on a ‘fair and reasonable’ basis.
It’s worth bearing in mind that, if you sell your home, Capital Gains Tax will apply to the part of the property used for business, unless it serves a dual purpose. For this reason, it’s best to avoid using a room in your home solely for business purposes.
11. Council tax
A lot of Self Assessment users tend to forget about council tax when calculating their business expenses for the year. But in the same way that you’re permitted to count a portion of your mortgage interest/rent or utility bills against the cost of your tax bill, you can also factor in part of your council tax bill.
The same rules apply regarding how to calculate the amount you’re allowed to chalk up as an expense. If your home office accounts for 20% of the space in your property, then you are allowed to claim up to 20% of the cost of your council tax on your annual Self Assessment tax bill.
12. Flat-rate simplified expenses
Of all the Self Assessment expenses you should be claiming on your annual tax return, simplified expenses is the easiest. HMRC allows for a no-quibble, flat-rate deduction for sole traders and partners in business partnerships who work from home for at least 25 hours/month.
These deductions amount to £26/month (2020/21 and 2021/22 tax years) when working from home for at least 101 hours each month – which subsequently amounts to an annual deduction of £312 that you can include as Self Assessment expenses on your tax return. For the 2019/20 tax year, the maximum flat-rate deduction was £4/week (£208/year), or £18/month (£216/year).
The flat rate does not include broadband or telephone expenses, so you can claim these costs in addition to the simplified flat fate.
Whilst simplified expenses are quick and easy to include on your Self Assessment tax return, you may find that you’re missing out on the opportunity to deduct more business costs from your tax bill. HMRC’s online expenses tool will help you to determine whether it’s better to claim simplified expenses or calculate the actual costs of working from home.
The bottom line
At the end of the day, there are loads of perfectly reasonable Self Assessment expenses that HMRC will be willing to accept as part of your tax return – particularly if you’re using simplified expenses. That being said, it’s crucial that you are able to prove these expenses are valid.
That means you need to keep records of all of your business expenses as proof of your costs. You do not need to send those records in as proof of expenses when you submit your Self Assessment tax return, and chances are no one will ever ask to see them. But if HMRC does choose to look into your accounts and asks to see proof of your expenses, you should always have them to hand.
That’s 12 of the best Self Assessment expenses you should be claiming – but if you need more guidance, you’ll find loads of how-to guides and useful information on the 1st Formations blog.
And if you’ve got any questions relating to company formation, please get in touch and we’ll be happy to help!