Which allowable expenses can I claim if I’m self-employed?
Most self-employed people pay income tax on their taxable earnings. If you're self-employed, you need to work out and pay your own tax via self-assessment.
It’s vital to ensure that you pay the right amount of income tax, so you should claim for any allowable business expenses (although allowable expenses for limited companies are slightly different).
We’ll reveal how to reduce your tax if you're self-employed and the allowable expenses you can claim as deductible from HMRC.
How can I reduce my tax by claiming business expenses?
As a sole trader or freelancer, any income above the personal allowance is taxable, but HMRC will often not tax you on money you need to spend to keep your business running.
For this reason, many of the costs directly related to the work you do, you can deduct from your gross income when calculating how much tax you need to pay.
These expenses are therefore known as ‘tax deductible’.
For example, you make £60,000 income for the year and have £5,000 of allowable expenses. You also have a personal allowance (£12,570 in the 2023/24 tax year). You can deduct both figures to find your taxable income, which is £42,430.
Without these expenses, your taxable income would be £47,430 in this example, so you would pay more tax.
Allowable expenses list for the self-employed
Below are the most common allowable expenses that you can claim against your income tax:
1. Office supplies
You can claim for office supplies, including:
· Printing costs and ink
· Phone and internet bills
· Software that has been used for under two years (or on subscription)
2. Office equipment
If you use cash basis accounting, you can also claim expenses for some business equipment, including:
· Computer hardware
· Software used for over two years
Alternatively, if you use traditional accounting, you will need to claim capital allowances on these instead.
3. Business premises
Expenses you can claim on your business premises include:
· Buildings insurance
· Maintenance and repair
· Security costs
If you buy your premises, you can’t claim any part of the cost of doing so as an expense.
Transportation and travel costs that you can claim include any travel necessary for your work (but not travel to and from your workplace).
If a journey is for personal and business reasons, then ask your accountant to help you work out the business cost.
If you’re using a vehicle that is not ticketed or metered, you can calculate the deductible cost using simplified vehicle expenses.
5. Legal and professional costs
If you use any professionals such as an accountant, financial adviser, solicitor or surveyor purely for business reasons, you can claim their fees as expenses. Bank charges may also count.
6. Raw materials and stock
You can claim for any raw materials or stock that you use for your work.
Most of your marketing costs should count as allowable expenses.
8. Professional insurance
Some jobs require you to have specific insurance such as:
· Professional indemnity insurance
You can claim these as allowable expenses.
Any special clothing such as a uniform or costume that you need to do your job is tax-deductible.
10. Trade subscriptions
The cost of membership in trade bodies or professional organisations is also an allowable expense, as is the cost of subscribing to professional publications.
What is the tax-free trading allowance?
You cannot claim business expenses if you also claim the tax-free trading allowance. This is an allowance for those who earn only low sums from self-employment, of £1,000 a year or less.
If you earn £1,000 or less per year from self-employment, you don’t need to register for self-assessment or notify HMRC, unless you’re asked to do so.
But if you expect to incur significant expenses, it may be worth registering anyway. Registering is also wise if you don’t want to miss out on certain benefits.
Claiming capital allowances when self-employed
If you use the traditional accounting method, then longer-lasting items that you buy for business purposes will count as capital assets rather than expenses.
You can claim capital allowances on these assets.
However, most self-employed people will use cash-basis accounting, which is usually preferred by small businesses.
What expenses can I claim if I work from home?
If your ‘office’ is located in your home, you can still claim expenses such as heating, electricity, council tax, rent, internet and phone usage.
But you can only claim for the proportion of these utilities that you use for your home office.
There are several different ways to work out the right proportion.
One method considers the number of rooms in your home. So, if your home has five rooms, one of which is your office, one-fifth of your heating bill may be tax-deductible.
You should ask your accountant about the best way to work this out. Another option is to claim simplified expenses.
All other business expenses are claimable in the normal way.
If you need help working out your tax-deductible expenses, an accountant can help.
Unbiased can quickly connect you with a local accountant who can support you with your expenses and taxes, so you pay the right amount.
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