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Much like a Limited Company, if you are Self-Employed, either as a Sole Trader or in Partnership, your business will have various allowable business expenses.
These expenses are deducted from your turnover in calculating the taxable profit. Therefore, if the turnover is £60,000 and there re £25,000 of allowable expenses, tax is payable only the remaining £35,000.
The guide is designed to cut through the myth and misunderstanding to explain what is an allowable expense for a Self-Employed business run on traditional accounting methods.
Broadly, the business running costs fall into the following categories:
In addition, capital allowances are available for the purchase of:
Working from Home
Many in Self-Employment work at least part of the time from home. If this is the case, you are entitled to claim a proportion of the costs of:
The key is to find a reasonable method of allocating the business element of these costs.
For example, if your mortgage is £8,000.00 per year and your office and facilities cover 25% of the area of the property, it would be reasonable to claim £2,000.00.
However, if you only work from home for two days a week, this would reduce to £571.42 as two sevenths of the £2,000.00.
For costs that have both a business and personal purposes, you can claim the business element. For instance, if the quarterly landline phone bill is £200.00 and it is used 60% of the time for business, you can claim £120.00.
Purchases for Resale
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Goods for resale (stock) | Goods or materials bought for private use |
| Raw materials | Depreciation of equipment |
| Direct costs of producing goods |
Advertising and Marketing
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Advertising in newspapers or directories | Entertaining customers and suppliers |
| Advertising online | Event hospitality |
| Bulk mail advertising (mailshots) | |
| Free samples | |
| Website costs |
Staff Costs
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Employee and staff salaries | Carers |
| Bonuses | Domestic Help |
| Pensions | Nannies |
| Benefits | |
| Agency fees | |
| Subcontractors | |
| Employer’s National Insurance |
Business Premises
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Rent for business premises | Any non-business use of the premises |
| Business and water rates | Costs of buying a business premises |
| Utility bills | |
| Property insurance | |
| Security | |
| Repairs and maintenance |
The costs of any structural alterations to install or replace equipment or to replace integral parts of the building would qualify for capital allowances.
Vehicle and Travel Costs
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Fuel | Non-business driving or travel costs |
| Repairs and servicing | Fines and penalties |
| Vehicle insurance | Travel between home and work |
| Vehicle licence fees | |
| Parking | |
| Hire charges | |
| Breakdown cover | |
| Train, bus, air and taxi fares | |
| Hotel rooms | |
| Meals on overnight business trips |
The costs of buying a vehicle for your business would qualify for capital allowances.
Alternatively, you can calculate your car, van or motorcycle expenses using a flat rate for business mileage instead of the actual costs of buying and running your vehicle as follows:
| Vehicle | Flat rate per mile |
| Cars and goods vehicles first 10,000 miles | 45p |
| Cars and goods vehicles after 10,000 miles | 25p |
| Motorcycles | 24p |
Office Costs
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Phone, mobile, fax and internet bills | Personal use of phones and stationery |
| Postage | |
| Stationery | |
| Printing | |
| Printer ink and cartridges | |
| Computer software for under 2 year’s use | |
| Computer software licence renewal |
The costs of buying office equipment and long-term computer software would qualify for capital allowances.
Professional Fees
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Legal fees | Legal costs of buying property or machinery |
| Accountancy | (these are claimed as Capital Allowances) |
| Professional fees | Fines, penalties and surcharges |
| Consultancy fees | |
| Professional indemnity insurance | |
| Public and employer’s liability insurance |
Finance Costs
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Bank, overdraft and credit card charges | |
| Interest on bank and business loans | |
| Hire purchase interest | |
| Leasing payments | |
| Alternative finance payments |
Clothing Expenses
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Uniforms | Everyday clothing (even if it is bought for work) |
| Protective clothing needed for your work | |
| Costumes for actors or entertainers |
Bad Debts
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Unrecoverable debts included in turnover | Debts not included in turnover |
| Debts related to the disposal of fixed assets | |
| Bad debt provisions |
Subscriptions
| ALLOWABLE EXPENSE | DISALLOWED EXPENSE |
| Trade or professional journals | Payments to political parties |
| Trade or professional body membership | Gym membership fees |
| Donations to charity |
Self-employment turnover and expenses information is recorded and submitted to HMRC as part of the annual personal tax return.
There is no requirement to send proof of expenses with the tax return. However, you must keep proof and records should HMRC request them.
An alternative is to use the ‘Cash Basis’ to work out your income and expenses for your tax return. For full details on this and to see if it would suit your business, please click here.
At CooperFaure, we have helped our clients follow their dreams by making this process as painless as possible. If you would like to discuss your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.
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