When it comes to working out allowable expenses on your Self Assessment form, there might be a few things you hadn’t realised you could claim. Here’s a UK-focused primer on what expenses can be claimed – and how to go about doing it.
What you can expense
This includes stationery, any printing costs, and computer software used for less than two years or requiring annual payment. Phone bills linked to work also apply.
Fuel, parking, vehicle insurance, repairs and transport fares related to work can all be claimed, as can accommodation costs and meals on overnight trips.
Legal and financial
Hiring professionals such as accountants to assist you is included, as are bank, overdraft and credit card charges, interest on loans and leasing agreements.
If you employ anyone, you can claim their salaries, bonuses, pensions, agency fees and the costs towards National Insurance.
Marketing and subscriptions
You can claim advertising costs along with website hosting and maintenance. Subscriptions include trade journals or any relevant memberships.
If you’re using traditional accounting, you can claim back any ‘bad debt’ – invoices that you won’t be receiving.
These have to be explicitly related to your operations; not ‘how to start a business’ courses or in areas on general interest.
Forget about shopping sprees – this is for uniforms or protective wear only.
Business premises costs
This includes rent, utility bills and business rates. If you work at home, things get slightly complicated…
A proportion of heating, electricity, water, mortgage interest, cleaning, insurance and council tax can all be claimed – either by using HMRC’s expenses checker (online) or working out the cost based on the floor area or number of rooms used, and the proportion of time the space is used for working.
1. Choose an accounting method. That’s either traditional accounting, where you record income and expenses by the date invoiced or billed; or cash basis accounting, normally used by businesses with an income of less than £150,000, where you only record income or expenses when you receive money or pay a bill.
2. Keep track of all business expenses as proof of costs for at least five years, including PAYE records, VAT records, receipts for goods and stocks, bank statements and cheque book stubs, sales invoices, till rolls and bank slips. It’s unlikely HMRC will check them, but you need to be prepped.
Key US differences
- In the US, there are two primary types of tax reduction: standard and itemised. Most people go for standard: a flat rate, no questions asked. The total for 2020 is $12,200 for single filers; $24,800 for married filers (filing jointly); and $18,350 for heads of household.
- You can deduct half of your Self Employment Tax (Medicare and Social Security costs normally paid by an employer) from your net income.
- Only 50% of meals are tax-deductible when travelling for business.
- You can also deduct any retirement plan contributions you make.
1. HMRC (UK) and the IRS (US) have several easy-to-follow YouTube videos on their respective channels. HMRC also has an online forum where a range of subjects are discussed.
2. Go Simple Tax is a free online expenses platform.
3. Coconut is a self-employed finance management app.