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 you must fulfil for HMRC and Companies House on behalf of your company. But what some aspiring self-employed 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 partners 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 offset some of your Self Assessment tax bills by claiming a range of business expenses on your annual Income Tax Return.
To help you start saving, we’ve rounded up 12 Self Assessment expenses that could end up slashing your tax bill.
1. Office supplies
If you’re having trouble finding business expenses to claim on your Self Assessment form, 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
- 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, then you should be claiming it on your Self Assessment returns.
All donations to registered charities or community amateur sports clubs (CASCs) by individuals 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 high earner being taxed at a 50% rate, you can claim back £250 of that back 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 a 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 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.
Permitted 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, and fines you incur while driving or travelling between home and your regular place of work.
4. Legal and financial costs
When calculating your business 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. Permittable 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, 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:
- Aren’t included in your turnover
- Are related to the disposal of fixed assets, such as land, buildings or machinery
- Aren’t 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 believe it or not, there are certain items of clothing purchases you’ll be able to claim to offset 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 use the entire cost of work-related clothing to offset your annual tax bill.
Unfortunately, you can’t claim for everyday outfits that you choose to wear to work. They’ve got to be necessary, work-specific clothing items, to qualify as a business expense.
8. Staff costs
If you employ permanent workers, seasonal employees or contractors to help you run your business, you can use a wide range of the expenses associated with their employment when filing your Self Assessment return.
- Employee and staff salaries
- Agency fees
- Employer’s National Insurance
That being said 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 on your tax return.
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 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.
For example, you can claim your home gas bill, electricity bill and water bill as an allowable expense, but you must work out how much of that bill actually applies to your business. For example, if you work from a five-room flat, and you spend most of your time working in one room, you can claim 20% of your annual utility costs as an expense on your Self Assessment form.
The same rules apply to your mortgage or annual rent costs, as well as broadband and phone rental.
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, you are permitted to count a portion of your mortgage 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 40% of the space in your property, then you are allowed to claim 40% of the costs associated with your council tax against your annual Self Assessment tax bill.
12. The £104 deduction
Of all the Self Assessment expenses you should be claiming on your annual form, this one is the easiest. Believe it or not, HMRC allows for a no-quibble deduction for all Self Assessment customers who use their home in a minimal way to conduct extra business.
This deduction amounts to a £4 per week office deduction – which subsequently amounts to an annual deduction of £208 that you can include as part of your business expenses on your Self Assessment return.
The bottom line
At the end of the day, there are loads of perfectly reasonable expenses that HMRC will be willing to accept as part of your Self Assessment form – 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 tax return, and chances are no one will ever ask to see them. But if HMRC does choose to look into your accounts further and they ask 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 covered – 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!