Tax Deductible Expenses For The Self-Employed

With January’s self-assessment tax return looming, we thought that now would be a good time to refresh your mind on what expenses you can and can’t claim as a sole trader or freelancer. Even if you have the help of an accountant, it is important to know which basic expenses are allowable so you can claim these back from the profit you pay tax on. Whether you have a high or low turnover, expenses can help to reduce your tax bill significantly. Let’s have a look at some of the allowable expenses:

1. Office equipment and tools

You can claim for a wide range of office supplies and equipment, from the laptop you use every day, to printers, and even computer software that has been used for less than 2 years.

2. Stationery & printing

Although most communication happens via digital methods now, if you send out physical letters regularly you can claim back for the cost of paper, postage, envelopes, and even pens. Ink cartridges are also a business expense so make sure you add those to the list.

3. Phone & internet

If you use your landline or mobile phone for business use, you can claim tax back on your contracts too. However, if you use your mobile for business and personal use, you will have to demonstrate a way of calculating the percentage you use the phone for business, and only claim tax back for that amount.

4. Professional services

When you get advice from an accountant, lawyer, marketer, or any other professional that helps your business, you can claim tax back on their fees. Even having a business bank account is important if you are self-employed as you can claim tax relief on bank, overdraft, and credit card charges, as well as interest on business loans.

5. Staff costs

If you are employing staff it is incredibly important to use cloud accounting software to keep you on track and ensure they are paid on time. Tax relief can also be claimed on staff salaries, bonuses, pensions, agency fees, and National Insurance contributions. For those who don’t want to grow their team and want to continue being freelance, you can also claim tax relief on subcontractors should you decide to outsource any of your work.

6. Travel/vehicle costs

Any travel that you carry out for business purposes can be claimed as an allowable expense. This includes train fares, bus fares, plane tickets, and accommodation costs too. If you combine a business trip with a personal one, much like phone expenses, you will have to separate your expenses into personal and business. Be sure to claim a mileage allowance if you use your vehicle as part of your business too (this is often the easiest way to track your motor expenses for the year as the allowance includes general wear and tear on your vehicle too).

7. Marketing & advertising

As well as being able to claim tax back on your marketing and advertising efforts, you can also claim back for hosting and maintaining your business’s website. If you are a member of a professional organisation, such as the Chartered Institute of Marketers (CIM), then you can claim tax back on your membership fees, as well as subscriptions to trade publications.

8. Pension contributions

Pension contributions are a difficult one, as they aren’t technically classed as a business expense. However, if you make pension contributions throughout the year then you are eligible for tax relief on these contributions, which you can claim for on your tax return.

Working From Home Expenses

So we have run through the main expenses you can claim for, which will help to bring your overall profits down for the tax year. One thing to also remember is that if you are a sole trader who is working from their home office, you can claim back a proportion of those expenses that relate to your home. For example heating, electricity, council tax, and even interest on your mortgage.

It is best to speak with an accountant regarding working from home expenses though, as again you need to find a realistic way to split your costs up. If you spend 30% of your 24-hour day (which equates to just over 7 hours) working from your home office, then you could split your expenses 30:70 for things like heating and electricity.

Tracking & Claiming Your Expenses

It is incredibly important that you are organised with your finances as a business owner, no matter what size your business is. If you are a sole trader, by law you have to keep records for 5 years after the 31st of January of the relevant tax year. The best way to do this is by using accounting software, rather than having multiple spreadsheets and folders full of receipts all over the place.

When it comes to claiming back your expenses, again you need to be organised and have all your expenses in one place. If you have kept track of your expenses throughout the year then it will be easy to provide HMRC with a detailed breakdown on your tax return.

Understanding which expenses you can claim for and which you can’t can make a huge difference to your overall cash flow. We would always recommend that you get in touch with a local accountant to help advise you, as they will be up to date with the latest rules and regulations on what you can claim. Here at Wright Vigar, our team of trusted advisors are on hand to help you. Feel free to get in touch to see how we can help.