What expenses can you claim when self-employed?
With a little over three weeks until the Self Assessment deadline, over 5 million taxpayers are yet to submit their tax return for tax year 2018/19. With many of those taxpayers classed as self-employed, there are a wide range of commonly-forgotten business expenses which can be claimed as tax relief but are often missed due to a lack of awareness on what can and cannot be claimed as a legitimate business expense. David Redfern, tax preparation specialist and managing director of DSR Tax Claims Ltd, explains the categories of business expenses which can be used to offset tax liabilities for self-employed taxpayers.
Self-employed taxpayers running their own business operations will incur a wide range of expenses, depending on the nature of the business. Redfern stated “When looking at which expenses should be included on a tax return, most taxpayers in self-employment will remember those expenses which directly relate to running their business or continuing to trade, such as premises, tools and equipment, staff costs where applicable and any stock they might require and these can be quite sizeable in certain types of business. Many taxpayers will consider their list of expenses to end there – however, there are many hidden business expenses which HMRC consider to be legitimate business expenses and ensuring that these are factored into your Self Assessment tax return is a vital part of running a financially viable business”. Business expenses will be offset against tax liabilities on the Self Assessment tax return.
Easily overlooked expenses include professional fees that the taxpayer may incur, such as legal fees, accountancy costs and insurance fees. Redfern added “Many self-employed taxpayers will also pick up advertising costs and bank charges, as well as potentially requiring a professional subscription in order to trade. These expenses may also include essential training that you are required to undertake in order to be able to continue your profession. Another area of hidden expenses can be home administration costs – where the taxpayer is providing business administration services from a home office, including the costs of running a home computer and postage services for providing invoices to customers and so on. These costs on their own may seem insubstantial but will soon mount up when collated”. Telephone costs may also be allowable, providing they are for business purposes only. Home broadband costs are a more contentious area as HMRC considers these to be general household costs although a dedicated business broadband contract would be considered to be an allowable business expense.
Where self-employed taxpayers are required to undertake travel as a part of running their business, such expenses can be included on a Self Assessment tax return. Redfern explained “Where the business travel is solely for business, rather than leisure, purposes, these costs are tax-deductible. This includes the cost of any accommodation and includes public transport costs as well as additional expenses such as parking.
However, costs relating to such things as parking tickets would not be allowable – similarly, any legal fees relating to personal criminal wrongdoing. HMRC would consider these to be totally avoidable expenses”. Mileage costs of up to 45p per mile can be claimed.
All business expenses are expected to have been incurred wholly and exclusively for business purposes. In addition, the actual expense should have been incurred and HMRC may request to see receipts and invoices to prove that the expense was actually acquired. Redfern added “Where an expense is incurred for dual purposes, such as a mobile phone contract that is used half for business purposes and half for personal use, only the proportion of the cost which relates to business can be included on your tax return. Additionally, you cannot include any costs which are just part and parcel of daily life, such as everyday clothing or accommodation costs – we all need clothes and somewhere to live so these are not legitimate business expenses”.
Taxpayers who are required to submit a Self Assessment tax return but are not classed as self-employed, such as those subject to the High Income Child Benefit Charge or who have work-related expenses of over £2,500, have a more limited range of allowable expenses which they are entitled to claim as tax relief.
