If you're self employed you can claim expenses against your tax bill. Unfortunately not all expenses are valid, so it's important to find out which ones are before submitting your tax return
Generally speaking, if it's something you buy for your business you can deduct the full cost of this from your accounts, and as a result you will pay less tax on your company's profits; but the way you claim will vary depending on the type of expenditure. 'Allowable expenses' would be things needed to run the business; excluding assets and 'capital assets'. Computers, machinery and other such operational assets are classified as 'capital assets', and need to be claimed under the rules for the annual investment allowance (AIA), and capital expenditure regime.
Expenses you can claim
Typical expenses that you can claim for include:
- Vehicle running costs: fuel, tax, insurance repairs, MOT et al. If the vehicle is also used for personal use, a pro-rata rate should be calculated based on a pro-rata calculation of the mileage
- Running cost of premises: rent, electric, broadband. Again to be calculated pro-rata if your business address is also your residence
- Salaries and benefits give to employees
Expenses you can't claim for
- Travel between home and the workplace
- The cost of buying vehicles (see 'capital allowances')
- Meals: excluding a 'reasonable' amount for meals during overnight trips and entertaining clients
- Premises: you cannot claim for initial costs, nor improvements and renovations, although you are likely to be able to claim some relief as a capital expense
- Salaries/benefits: If you are self-employed, you cannot claim for your own wages, or any other monies drawn from the business. This also includes claiming for National Insurance contributions, pensions and life insurance
The rules are not straightforward for claiming expenses and allowances. If you're not fully comfortable with submitting your own returns, it will be well worth investing in an accountant to process your end of year tax return at the end of each financial year. It may seem like an unnecessary expense, but a good accountant will often be able to save you more on your return with their inside knowledge of allowances and loopholes. This means you'll often save much more than if you'd processed it yourself – even with the accountant's fees factored in.
For more information on the 'annual investment allowance' and 'capital expenditure regime', please refer to our guide: Capital Expenses Explained for the Self Employed.