Now that you have registered as self-employed and your business is up and running, it is very important that you ensure you are keeping track of your sales and expenses. However, it isn’t as straight forward as keeping track of all the money coming in and going out of the business. You need to make sure that you are only claiming for those expenses that HMRC recognise as allowable expenses, as otherwise, you could end up with unexpected fines.
There is a lot of information out there about what expenses a self-employed person can claim through the business and the HMRC website does have a pretty comprehensive set of articles on this topic. I wanted to be able to give business owners an overview of what can be claimed to get them started. If you are unsure as to whether something can be claimed as an allowable business expense or not, contact HMRC or your accountant or bookkeeper.
For the most part, the majority of business expenses can be claimed on your self-assessment. There may be some expenses that you enter into the accounts for accounting purposes but then need to discount for tax purposes – ie. Depreciation of assets, entertainment costs relating to clients/suppliers/customers or charitable donations. The main thing you need to keep in mind is that the expense is “wholly and exclusively” for business use.
Some of the expenses are straightforward to deal with. You simply enter them straight into your accounts as long as they are for the business. They include:
- Stationery
- Printing costs
- Postage
- Advertising
- Computer software
- Business premises expenses: rent, utility bills, insurance
- Staff costs: salaries, NI contributions, PAYE, pension contributions
- Legal and professional costs: accountants, solicitors
- Purchase of stock or raw materials and other associated costs
- Business insurance
- Membership to trade/professional bodies relevant to your business
There are then some types of expenses that aren’t as straight forward.
Travel:
While you can claim for business-related car/van costs like insurance, fuel and repairs – you would only be able to claim for the business portion and no personal use at all, so you would need to work out exactly what your business use is, which can be difficult to calculate.
Instead, you can use the simplified vehicle expenses from HMRC which is a flat rate per mile. This would cover your costs for your vehicle. If you use this method, you do need to keep using it until you have stopped using the vehicle. In order to claim the fate rate, you will need to track your business mileage and have a record of it.
The current rates are (as of 06/04/2020):
Cars and Goods Vehicles (first 10,000 miles) £0.45p/mile
Cars and Goods Vehicles (over 10,000 miles) £0.25p/mile
Motorcycles £0.24p/mile
You can claim for all public transport costs – but only for the business portion, so if you take a journey that is not “wholly and exclusively” for business, you will need to separate out the business portion.
The same applies to hotels and meals.
It is very important to note that you cannot claim for travel between home and your main place of work.
Clothing:
There are very strict rules when it comes to claiming for clothing and this is down to the “wholly and exclusively” rule. You can claim for uniforms, protective clothing needed for work, and costumes for actors or entertainers. If the clothes are not branded with your logo or they could be worn outside of work, you cannot claim these costs on your self-assessment.
Use of Home:
The majority of sole traders work from home and therefore will want to be able to claim for a portion of the household bills. The easiest way to do this is to use the simplified expenses that HMRC have set-up. This method can only be used for those who work at least 25 hours or more a month from home.
| Hours of business use/month | Rate/month |
| 25-50 | £10 |
| 51-100 | £18 |
| 101 and up | £26 |
The other method is more complicated and you would need to calculate out the proportion of business use for your home.
These methods only cover things like gas, electricity, mortgage and council tax.
Telephone and Internet:
There are quite strict rules when it comes to claiming for the telephone and internet use when you are self-employed and work from home.
If the telephone/mobile is used for both personal and business purposes, you can’t claim for line rental and can only claim for business calls if they are identifiable on the bill. With the way phone packages work nowadays it can be quite difficult to prove what is a legitimate business expense. A way around it would be to get a completely separate phone line for the business so you are able to claim 100% of the costs.
The same applies to the internet – you need to work out the proportion of the business use and only claim that percentage of the bill. One way is to work out how many hours per month you work from home. Ie. Monday to Friday 9 am to 5 pm – so 8 hours a day, 5 days a week which is 40 hours/week and 160 hours/month (in a 4-week month). There are 672 hours in a month, so the percentage of the internet bill you could claim would be 23.81%.
This is only a brief guide to help get you on-track. If you are unsure about whether an expense is tax allowable, I would encourage you to speak to HMRC or your accountant/bookkeeper.