If you’re self-employed there are various expenses you can claim for but it can sometimes feel like a minefield knowing what you can and cannot claim.
I often discuss the subject of self-employed allowable expenses with clients so I have chosen to answer the questions they mainly ask me.
Please note: The rules for limited companies are different to that of a sole trader. Make sure you keep calculations with your records in case the HMRC ever asks for them.
If you use your mobile phone for business purposes then you can claim some of your costs. You will need to work out what percentage of the phone is for business use and that is the amount of the cost you can claim.
Can I put Entertaining staff through as self employed allowable expenses?
This is allowable for tax purposes as staff welfare. This only applies to official employees, not freelancers/subcontractors.
What about entertaining clients, customers or third parties? Are they classed as self employed allowable expenses?
You should include this as a business expense, but this is not an allowed expense. If you hire a venue for an event then tax relief may be claimed on the cost of the venue.
If you need to pay for accommodation then you can claim the expenses as tax deductible if they are exclusively incurred for the purposes of your work. If you are using the accommodation for a mix of business and personal use then you must calculate the proportion of business use.
Are home office costs self employed allowable expenses?
There are two methods of working out what you can offset as self employed allowable expenses when it comes to working from home:
- Simplified HMRC rate
- Calculate actual costs
1. Simplified HMRC rate
This method simply asks you to look at how many hours a month you spend running your business or work at home and includes a fixed amount for business use of the home in your accounts.
The amount varies with the average number of hours per month you run your business or work at home, as follows:
- 25 to 50 hours: £10 per month
- 51 to 100 hours: £18 per month
- 101 hours or more: £26 per month
While this method is certainly quicker than working out your actual expenses, the figure might not be as high. This means you could save time, but you will pay more tax. It is also important to note that the flat rate method only covers expenses for light, heat, and power. You will still need to calculate how much you can claim for your other costs, such as council tax, rent, and mobile and broadband bills.
I want to make sure I don’t miss anything out, what’s the easiest way to work out self employed allowable expenses when working from home?
2. Calculate actual costs
Calculate the actual running costs for your home and apportion these fairly based on how you use your home to run your business. Start by calculating the number of rooms you have in your home, minus kitchens, bathrooms and hallways. Then you need to work out the percentage of time any of those rooms are used for your business.
For example, you may have four rooms; two bedrooms, a living room and an office. You use one of the four rooms, your office, 50% of the time for your self-employed work. Your total household running costs are £5,000 per year.
You would calculate your business usage as 50% x 1/4 x £5,000 to get a figure that could be classed as the rental cost for your business using a workspace in your home, which in this case would be £625. This would mean that you submit £625 on your tax return as your costs for working from home.
- Do not allocate a room solely for business use – ensure that there is also an element of personal use to avoid any capital gains tax implications
- You can include mortgage interest (but not repayments) in your calculations. If you rent, just use the rental charge. If you are in a house share, calculate your expenses using only the rooms that you can access (not your housemates’ bedrooms!)
- You can only include bills you contribute to – for example if you have an arrangement where your partner/housemate pays the entire electricity bill then you cannot include this in your calculations, but if you share bills you can include your proportion of the cost
- Be sure to include all expenses – gas, electricity, council tax, insurances, cleaning bills…
If you are travelling to carry out your work then reasonable food and drink costs can be claimed. The travel must be allowable and qualify as business travel and you must be away from your normal place of work.
Looking to upskill or expand your knowledge? In some cases the expenditure is allowable.
If you are looking to continue your professional development, building on already acquired skills, knowledge and professional expertise then the costs are allowable for tax purposes.
If you are learning a new skill or undertaking a new qualification then the cost of the training/qualification, and all associated expenses (travel, subsistence) are not allowed. This is because the new skill or knowledge is an asset which cannot have a value placed on it – it is a benefit to the individual and is judged as not being “wholly and exclusively” for the purposes of the existing trade or occupation.
When thinking about claiming for travel costs you need to consider your “base of operations”.
The “base of operations” is where you carry out the bulk of your work. If you mainly work from home or your work is “itinerant” in nature (for example a plumber, or a sales person who is required to visit clients) then all travel costs will be allowable.
Travel expenses are not usually allowable when you work partly from home, but there are patterns in your work that are regular and predictable. For example, attending a company meeting each week. Travel expenses are also not usually allowable if tools or equipment are stored at a site and you pick them up before travelling elsewhere. In those two examples, the “base of operations” is not actually your home, and only onward travel from your actual base of operations could be considered an allowable expense.
You may need to justify your travel expenses to HMRC, so make sure that if you are claiming that your home is your base of operations you can evidence any of the following that are applicable:
- the majority of your work is completed at home
- your do your admin and paperwork at home
- your home address is on all of your official paperwork and correspondence
- contracts are prepared at home
- you store your tools/equipment at home
- you sell from home
- your home is used for meeting with clients and suppliers
Do you drive for work?
Are you certain your travel costs are an allowable expense?
Then there are two different methods for claiming your vehicle costs. You need to work out which makes most sense for you because once you claim using one method then you must use that method for the life of your vehicle.
Keeping it simple – keep a log of all business journeys, with details of the date, distance, purpose of the journey and the start and end points. You can then claim 45 pence per mile for the first 10,000 miles you drive in a year, and 25 pence after.
More complicated – but you must use this method if your business is above the £83,000 VAT threshold.
Using this method involves keeping records of ALL expenses relating to your vehicle, including;
- Include fuel costs, breakdown cover, tax, insurance, repairs and maintenance
- Include the interest costs if the vehicle has been bought on a lease
- Spread warranty costs over the life of the warranty
Vehicles are capital items and so the purchase cost is dealt with under “Capital Allowances” and the costs can be offset. Vans are eligible for the Annual Investment Allowance (AIA), but cars are not. If you sell the vehicle then the proceeds will be taxable.
You may need to justify your claims to HMRC and so it is important to calculate the percentage of time your vehicle is used for personal use – keep a careful log of any personal use over a period of at least three months to ensure that you are not over claiming your vehicle expenses.
If you have any questions about Self Employed Allowable Expenses, or any other accounting needs, you can contact me here.
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