What happens if you use your private car to see clients and your living room is your office? When you buy equipment, pay financial charges or hire new staff?
Expenses become tax deductible. And you should make use of that.
In the following we will explain which expenses are tax-deductible when you are self-employed, a freelancer or simply working from home.
What does it mean for an expense to be deductible?
Deducting costs means reducing your taxable profits and thus lowering the amount of tax you are liable for.
For example, if your turnover is £50,000 and you claim £10,000 in allowable expenses, then your taxable income is reduced to £40,000. This means you are only being taxed on your taxable income of £40,000 rather than on your full income of £50,000, saving you the amount of tax you would have paid on the extra £10,000.
A deductible or allowable expense is one that is related to the functioning and development of your business, recorded in your accounting and supported by invoices as proof of purchase.
Which expenses can I deduct from my taxable income?
- Office costs – these include stationery costs such as phone and internet bills or printer ink and cartridges. Property expenses such as rent, utility bills or property insurance and security are included in this category, too.
- Travel expenses – vehicle insurance, repairing and servicing as well as fuel and parking are examples of allowable travel expenses. Hotel rooms, meals on overnight business trips and train, bus or air fares are also deductible.
- Clothing expenses – uniforms, protective clothing and costumes can be tax deductible.
- Staff expenses – you can deduct expenses such as salaries, bonuses, pensions, National Insurance and benefits.
- Reselling expenses – these include costs associated with holding stock, purchasing raw materials and direct costs that arise from the production of goods.
- Legal expenses – you can claim costs for hiring accountants, solicitors and surveyors. Professional indemnity insurance premiums and insurance policies for your business, for example public liability insurance, can be deducted, too.
- Financial costs – bank, overdraft and credit card charges as well as interest on loans and leasing payments are tax deductible.
- Marketing and subscriptions costs – these include advertising costs, for example advertising in newspapers or website maintenance, and subscriptions for trade or professional journals. Trade body or professional organisation memberships related to your business are allowable business expenses, too.
Make use of the Self-assessment helpline if you are unsure about any of your expenses.
What else is tax deductible?
You can reclaim VAT paid on goods and services purchased for use in your business. Claims should be submitted through your VAT Returns and your HM Revenue and Customs online account will show you any VAT refund you are owed.
You can also claim R&D relief from HM Revenue and Customs which is an extra corporate tax deduction for certain qualifying expenditures. The relief means you pay less corporate tax or receive payable tax credit if you are a loss-making company. There are different schemes for different sizes of companies so ensure you are informing yourself about the scheme that applies to your company.
If you are making profits from patents of yours, you cannot claim more expenses but you should be paying a lower corporate tax rate of 10% on the revenue that stems from the patents.
What happens if you use something personally and commercially?
This is often the case if you are working from home or have only recently started your business leading you to use your personal assets for business reasons.
You are usually able to claim a proportion of your expenditures using a reasonable method of deriving your costs. For example, if you are claiming rent, your rent could be divided by the number of rooms or by the amount of time spent working from home. You would only be able to deduct the rent associated with your working space or working hours.
Deductible expenses when working from home include heating, electricity, council tax, mortgage interest or rent and internet and telephone bills.
Which expenses do you deduct?
In this post we aimed to shed light onto what expenses are tax-deductible to help you become aware of how you could be saving money for your business. If you have additional advice or relevant experience, feel free to let us know in the comment section below!