Maximise your tax savings with self assessment expenses
Did you know that thousands of UK taxpayers save substantial amounts each year by properly claiming self assessment expenses? That’s right – if you’re not fully clued in on what you can claim, you might be leaving a significant chunk of change on the table.
The average small business could potentially save thousands of pounds annually simply by understanding and utilizing the right expenses. Tax savings might not sound thrilling at first, but when you realize the potential to boost your bottom line, it becomes a whole lot more interesting.
In this article, let’s explore the topic of self-assessment expenses and uncover the best ways to maximise your tax savings.
Allowable expenses for self-employed sole traders
As a self-employed sole trader, you know that running a business comes with its fair share of expenses. But here’s the good news: many of these business expenses are allowable for tax purposes. That means you can deduct them from your trading income when calculating your taxable profits. Pretty sweet, right? But what exactly qualifies as an allowable expense? Let’s break down self assessment expenses.
What qualifies as an allowable expense
In a nutshell, an expense is allowable if it’s incurred “wholly and exclusively” for your business. That means the cost must be directly related to running or growing your venture. Think office supplies, travel costs, staff salaries – all the things that keep your business ticking. Even that fancy new laptop can count, as long as it’s used solely for work.
How to claim allowable expenses on your tax return
Paperwork isn’t the most thrilling part of being your own boss. But keeping accurate records of your expenses is crucial. Every time you make a purchase for your business, stash that receipt like it’s gold. When tax season rolls around, you’ll need to report all your allowable expenses on your self-assessment tax return. Stay organized throughout the year. Keep a spreadsheet, use an app, whatever works for you. That way, you’re not scrambling to piece everything together at the last minute.
Common allowable expenses for sole traders
So, what kind of costs can you typically claim as a sole trader? Here are some of the most common:
- Office rent and utilities
- Business travel (mileage, train fares, etc.)
- Stock and raw materials
- Insurance premiums
- Advertising and marketing
- Accountancy fees
Of course, every business is unique. What counts as an allowable expense for a graphic designer might be different than for a plumber. The key is to always ask yourself: was this cost incurred purely for my business?
Not sure what the sole trader tax rate is? Fret not, we have created an in-depth guide just for you.
Simplified expenses for sole traders
If tracking every single expense sounds like a headache, we’ve got good news. Sole traders can opt for “simplified expenses” in certain areas.
What are simplified expenses
Simplified expenses are flat rates set by HMRC that you can use instead of calculating your actual costs. They’re available for three main categories:
- Vehicle expenses (mileage)
- Working from home
- Living at your business premises
For example, rather than tallying up all your car-related receipts, you can just claim a set amount per business mile driven.
Benefits of using simplified expenses
The obvious perk of simplified expenses is that they’re, well, simple. No need to keep detailed records or do complex calculations. They can also be quite generous. The flat rates are designed to cover all the associated costs, so you might end up claiming more than you would with the actual expenses method.
How to claim simplified expenses
Claiming simplified expenses is a breeze. Just choose that method when filling out your self-assessment tax return. Keep in mind, you don’t have to use simplified expenses for everything. You can mix and match, using flat rates for some costs and actual expenses for others. It’s all about finding the combo that works best for your business.
Capital allowances for business equipment and vehicles
Now, let’s talk about those big-ticket items. You know, the ones that make you wince a bit when you hit “purchase.” The good news is, you can often claim capital allowances on these assets.
What are capital allowances
Capital allowances let you write off the cost of certain business assets against your taxable profits. They’re basically the HMRC’s way of recognizing that things wear out or become obsolete over time. Assets that typically qualify for capital allowances include:
- Equipment and machinery
- Business vehicles
- Certain building fixtures (e.g., air conditioning)
Types of capital allowances
There are a few different types of capital allowances, each with their own rules and rates. The main ones are:
- Annual Investment Allowance (AIA): Covers most plant and machinery, up to a certain limit.
- Writing Down Allowance (WDA): For any expenditure not covered by AIA, at a lower rate.
- First Year Allowances (FYAs): Let you claim the full cost of some assets in the first year.
It’s worth noting that cars have their own set of capital allowance rules, based on their CO2 emissions.
How to claim capital allowances
You can claim capital allowances when filling out your self-assessment tax return. The process involves a bit of number-crunching, so many sole traders find it helpful to use accounting software or consult a professional. One key point: if you’re using cash basis accounting, you can only claim capital allowances on cars. For other assets, you’ll simply deduct the full cost as an allowable expense. You can also avail accounting and tax compliance services from Sleek for a reliable and stress-free process. Visit Sleek’s homepage, choose a suitable service with ease, and our friendly experts will guide you and fulfil your requirements.
Claiming travel expenses as a sole trader
As a sole trader, your business can take you places. Whether it’s meeting clients, attending trade shows, or just running errands, those miles can add up. The good news is, you can often claim travel expenses on your taxes.
What travel expenses can you claim
Allowable travel expenses for sole traders include:
- Vehicle costs (mileage, fuel, parking, tolls)
- Public transport fares
- Hotel accommodations (for overnight business trips)
- Meals (while traveling for business)
The key rule is that the travel must be wholly and exclusively for business purposes. So, if you mix business with pleasure on a trip, you can only claim the portion that’s related to your work.
Calculating business mileage
If you use a vehicle for your business, you have two options for claiming expenses: you can either track all your actual costs (fuel, maintenance, insurance, etc.) or use HMRC’s simplified expenses mileage rates. With the simplified method, you just need to keep a log of your business journeys. Then, you multiply the total miles by the approved rate for your vehicle type (e.g., 45p per mile for the first 10,000 miles in a car).
Keeping records of travel expenses
Whether you’re claiming actual costs or using simplified expenses, you need to keep good records of your business travel. That means hanging onto receipts, invoices, and tickets. For mileage claims, I recommend keeping a detailed log of your trips. Note the date, destination, purpose, and miles traveled for each journey. A spreadsheet or mileage tracking app can be a big help here.
Office and business premises expenses
Your workspace, whether it’s a home office or a rented shop, comes with its own set of expenses. Many of these costs are allowable for sole traders.
Allowable office expenses
If you rent office space, you can typically claim expenses for:
- Rent and business rates
- Utility bills (electricity, water, gas)
- Maintenance and repairs
- Property insurance
You can also claim for office equipment and supplies, like stationery, postage, and cleaning products.
Claiming expenses for home-based businesses
Many sole traders, myself included, work from home at least part of the time. If you use part of your home exclusively for business, you can claim a proportion of your household bills as allowable expenses. There are two ways to do this:
- Calculate the actual costs (e.g., based on the number of rooms or floor area used for business)
- Use HMRC’s simplified expenses flat rate (based on the hours you work from home each month)
I find the simplified method much easier. You just need to keep track of your work hours and multiply by the set rate. No complex calculations or room measurements required.
Rent and business rates
If you rent business premises, the rent is usually an allowable expense. The same goes for any business rates you pay to the local council. One note: if you’re renting from a connected person (like a family member), the expense is only allowable if you pay a commercial rate and the property is used solely for business.
Key Takeaway:
Slash your tax bill by smartly claiming allowable expenses. From office supplies to travel costs, if it’s purely for business, you can likely deduct it. Keep those receipts and consider simplified expenses for a hassle-free approach.
Claiming expenses for stock, raw materials, and goods
As a self-employed sole trader, one of the most important things you can do is keep track of your expenses. And when it comes to claiming expenses, don’t forget about the cost of any stock, raw materials, or goods you buy to sell on.
What counts as stock and raw materials
Stock and raw materials are the items you buy with the intention of using them to create your products or services. This could be anything from fabric for a clothing line to ingredients for a catering business. It’s important to keep detailed records of these purchases, including receipts and invoices.
Valuing your stock
When it comes to valuing your stock for tax purposes, there are a few different methods you can use. The most common is the cost method, where you simply value your stock at the price you paid for it. There’s also the retail method, where you value your stock at the price you plan to sell it for, minus a markup percentage. Whichever method you choose, the key is to be consistent and keep accurate records.
Claiming expenses for goods bought for resale
If you buy goods specifically to resell them, you can claim the full cost of these items as an allowable expense. This is different from claiming stock and raw materials, because you’re not altering or using these goods to create something new. You’re simply buying them and selling them on as is. For example, let’s say you run a small gift shop. You buy a batch of handmade candles from a local artisan to sell in your store. The full cost of those candles would be an allowable expense, because you’re buying them purely to resell. Just remember, as with all expenses, you need to keep detailed records and receipts for any goods you buy for resale. And if you’re using the cash basis accounting method, you can only claim these expenses when you actually sell the goods, not when you buy them.
Staff costs and subcontractor expenses
If you have employees or use subcontractors in your self-employed business, there are certain staff costs and expenses you can claim on your taxes. But it’s important to understand the rules and keep detailed records to make sure you’re claiming everything you’re entitled to.
Allowable staff expenses
When it comes to your employees, you can claim a number of different expenses, including: – Salaries and wages – Bonuses and commissions – Employer’s National Insurance contributions – Pension contributions – Training costs – Employee benefits, like health insurance or company cars. Make sure to keep detailed records of all their pay, as well as any benefits or expenses you provide. It’s important for claiming these expenses on your taxes.
Claiming for subcontractors and freelancers
If you use subcontractors or freelancers in your business, you can also claim their costs as an allowable expense. This includes any fees you pay them, as well as any materials or equipment you provide for them to do their job. One thing to keep in mind is that if you’re using subcontractors, you may need to file a CIS return and deduct the appropriate taxes from their pay. It’s important to understand your obligations as a contractor and make sure you’re following all the rules.
Employer’s national insurance contributions
As an employer, you’re required to pay National Insurance contributions for your employees. These contributions go towards things like state pensions, statutory sick pay, and maternity leave. The amount you’ll need to pay depends on how much your employees earn and whether they’re in a pension scheme. But as a self-employed sole trader, you can claim these contributions as an allowable expense on your taxes. It can be a bit confusing to figure out exactly how much you need to pay in National Insurance contributions, especially if you have a mix of full-time and part-time employees.
Financial costs and bank charges
Running a business comes with all sorts of financial costs and bank charges. But the good news is, many of these expenses are allowable and can be claimed on your taxes. Let’s break down some of the most common financial expenses you might encounter as a self-employed sole trader.
Allowable financial expenses
There are a number of financial expenses you can claim as allowable, including: – Bank charges and interest on business accounts – Credit card charges for business purchases – Hire purchase interest – Leasing payments – Accountant’s fees. Keeping a separate business bank account and credit card exclusively for your business can make it easier to track expenses and maintain records.
Claiming for bank charges and interest
If you have a business bank account, you may be charged fees for things like transactions, overdrafts, and account maintenance. You can claim these charges as an allowable expense, as long as they’re solely for business use. The same goes for any interest you pay on business loans or credit cards. As long as the loan or credit is being used exclusively for your business, you can claim the interest as an expense.
Accounting and bookkeeping fees
As a self-employed sole trader, it’s so important to keep accurate financial records and stay on top of your bookkeeping. But let’s be real – not everyone has the time or expertise to do this themselves. That’s where accountants and bookkeepers come in. If you hire an accountant or bookkeeper to help with your business finances, their fees are an allowable expense. This includes things like preparing your annual accounts, filing your tax returns, and providing general financial advice.
Expenses for business insurance, phone, and internet
As a self-employed sole trader, there are a number of essential expenses you’ll need to keep your business running smoothly. Three of the most common are insurance, phone, and internet costs. Let’s take a closer look at each of these expenses and how you can claim them on your taxes.
Claiming for business insurance premiums
Insurance is a must-have for any business, and as a sole trader, you’ll want to make sure you’re properly covered. Some common types of business insurance include: – Public liability insurance – Professional indemnity insurance – Business contents insurance – Employer’s liability insurance (if you have employees) The good news is, you can claim your business insurance premiums as an allowable expense on your taxes. Just make sure to keep detailed records of your policies and payments, and only claim for the portion of the premiums that relate to your business. For example, if you work from home and have a combined home and business contents insurance policy, you can only claim the portion of the premium that relates to your business contents.
Allowable phone and internet expenses
In today’s digital age, it’s hard to run a business without a reliable phone and internet connection. As a sole trader, you can claim a portion of your phone and internet expenses as allowable, as long as they’re used for business purposes. If you have a separate phone line or internet connection that’s used exclusively for your business, you can claim the full cost of these expenses. But if you use your personal phone or internet for both business and personal use, you’ll need to apportion the expenses accordingly. One way to do this is to keep a log of your business calls and internet usage, and then calculate the percentage of your total usage that’s for business purposes. You can then claim that percentage of your total phone and internet expenses as an allowable expense.
Apportioning mixed business and personal use
It’s common for sole traders to use certain assets, like phones or vehicles, for both business and personal purposes. In these cases, it’s important to keep detailed records and apportion the expenses accordingly. For example, let’s say you use your personal car for business travel. You’ll need to keep a mileage log and record the purpose of each trip, as well as the total miles driven. You can then claim a portion of your vehicle expenses, like fuel and maintenance, based on the percentage of miles driven for business purposes. The same goes for things like phone and internet expenses. If you use your personal phone and internet for both business and personal use, you’ll need to keep records of your usage and apportion the expenses based on the percentage used for business.
Advertising, marketing, and website expenses
As a self-employed sole trader, advertising and marketing are key to getting your business in front of potential customers. And in today’s digital world, having a website is pretty much a must. The good news is, many of these expenses are allowable and can be claimed on your taxes.
Claiming for advertising costs
Advertising costs can add up quickly, but they’re a necessary expense for most businesses. Some common advertising expenses you can claim include: – Print ads in newspapers or magazines – Online ads, like Google AdWords or Facebook Ads – Radio or TV advertising – Direct mail campaigns – Promotional merchandise, like branded pens or t-shirts. As long as the advertising is solely for your business, you can claim the full cost as an allowable expense. Just make sure to keep detailed records of your advertising spend, including receipts and invoices.
Allowable website expenses
If you have a website for your business, there are a number of expenses you can claim, including: – Domain name registration and renewal fees – Website hosting fees – Website design and development costs – Content creation, like blog writing or product descriptions – Website maintenance and updates As with advertising expenses, you can claim the full cost of these website expenses as long as they’re solely for your business. And if you use a portion of your home internet for business purposes, you can claim a percentage of those expenses as well.
Expenses for business entertaining
Business entertaining can be a bit of a gray area when it comes to allowable expenses. In general, you can only claim expenses for entertaining clients or customers if the primary purpose of the entertainment is to discuss a business transaction or encourage new business. Some examples of allowable business entertaining expenses might include: – Taking a client out for a meal to discuss a project – Hosting a launch party for a new product – Attending a trade show or conference to network with potential customers It’s important to keep detailed records of any business entertaining expenses, including the date, location, and purpose of the event, as well as receipts for any costs incurred. One thing to keep in mind is that there are limits on how much you can claim for business entertaining. You can only claim up to £150 per person per year for business entertaining.
Key Takeaway:
Keep all receipts and detailed records for expenses like stock, materials, staff costs, bank charges, and advertising to maximise tax savings. From raw materials for products to subcontractor fees and online ads, knowing what counts as an allowable expense can significantly reduce your taxable income.
Conclusion
Well, there you have it – the lowdown on self assessment expenses. By now, you should have a solid grasp on what you can claim, how to keep track of your expenses, and how to submit them like a pro.
Remember, claiming your rightful expenses isn’t just about saving money (although that’s a pretty sweet bonus). It’s also about running a smarter, more efficient business. So go forth and claim what’s yours, you savvy entrepreneur!
Taxes and expenses giving you a headache? Book a service accounting and tax compliance service from Sleek. Our friendly experts are experienced in guiding sole traders and small businesses with their unique needs. They will help you fulfil your requirements, while you can focus on growing your business.
FAQs in relation to self assessment expenses
What are allowable expenses in self assessment UK?
Allowable expenses for self-assessment in the UK include costs directly tied to running your business. Think office costs, travel fares, and staff wages.
What are HMRC allowable expenses?
HMRC allows you to deduct things like office supplies, business travel, staff salaries, and financial charges from your taxable profit.
Do you have to give receipts for self assessment expenses?
No need for receipts with every claim but keep them handy. HMRC might ask to see proof if they’re curious about your claims.
What if my self assessment expenses are more than my income?
If your outgoings eclipse earnings on paper, it signals a loss. You can use this loss to reduce tax now or later down the line.
