Thankfully, you can reclaim some of these expenses if they’re exclusively related to the running of your business.
If you’re planning to get an early start on your self-assessment next year or are still working towards meeting the 2021/22 deadline on 31 January 2023, you need to know exactly which expenses you can include in your returns.
Luckily, spotting an allowable expense is fairly simple once you know what to look for.
What is an allowable expense?
HMRC allows you to deduct purchases from your taxable income as long as they were made “wholly and exclusively for the purposes of the trade, profession or vocation”.
Put simply, this means you can claim for any expense solely related to your business. Common allowable expenses include:
- salaries paid to your staff
- money paid to subcontractors
- office costs such as phone bills and stationery
- heating and lighting for your business premises
- advertising and marketing costs.
What if a purchase is for business and personal use?
Sometimes you will buy something that has both personal and professional uses.
Because these purchases are not wholly related to your business, HMRC does not consider them an allowable expense. Non-allowable expenses include:
- a personal laptop that you sometimes use for work
- food and drink that you purchase to consume at work
- non-specialised clothing.
That being said, there are some instances where you can reclaim some of your costs on items you use for your business and personally.
For example, if you use your personal phone to make business calls, you can claim for any calls you make for business purposes. If you were to spend £200 a year on your phone bill, and you know that £70 of that was used solely for the running of your business, you’re able to deduct that amount from your taxable profits.
There’s also a possibility that, if you work from home and you’re self-employed, you’ll be able to reclaim some of the costs of your utility bills, internet usage and perhaps even council tax. You would do this by calculating a reasonable division of your costs.
If you own a four-room house or apartment, for instance, and you only use one of these rooms for work, you might divide your bills by four to give you the amount it costs to run your home office.
What about motor costs?
Vehicle expenses are another common cause of confusion. You can claim tax relief in the form of a capital allowance on the purchase of a vehicle used in the business. If you are self-employed and use the vehicle for personal as well as business purposes then only the proportion relating to business use can be claimed. Different rules apply to company cars.
The vehicle running costs such as fuel, insurance, repairs and road tax can be claimed too. Again, only the business proportion can be claimed by the self-employed. Simplified expenses can be used as an alternative, although this may be a less accurate reflection of your true costs. Using simplified expenses you can claim a flat rate of 45p per mile for the first 10,000 miles travelled on business journeys and 25p for each additional mile.
We’re here to help
If you are unsure about your expenses, it’s always best to ask a professional. We have years of experience with tax returns, and we’re always happy to offer advice.
Get in touch with the team at Pearson May to discuss your expenses.