A Comprehensive Guide to Allowable Expenses for Self-Employed Individuals in the UK – 31.07.2023

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What are Allowable Expenses?

Allowable expenses are the costs you can deduct from your business income before calculating your tax liability. By deducting these expenses, you can effectively lower your taxable profit, resulting in lower tax payments. However, it’s crucial to ensure that all expenses you claim are genuinely incurred for business purposes only and are fully supported by proper documentation.

1. Types of Allowable Expenses

a) Office Expenses: This category includes expenses related to running your business premises, such as rent, utility bills, insurance, and business rates.

b) Travel Expenses: Deductible travel costs encompass business-related journeys, whether by car, public transport, or even bicycle. Keep track of fuel, parking, and public transport expenses to claim them appropriately.

c) Office Equipment: Expenses on office equipment like computers, printers, stationery, and other essential tools necessary for your business operations qualify as allowable expenses.

d) Staff Costs: If you employ staff, their wages, salaries, and employer’s National Insurance contributions can be claimed as allowable expenses.

e) Marketing and Advertising: Money spent on marketing your business, such as website development, advertising campaigns, and promotional materials, can be deducted.

f) Training and Professional Development: Any expenses incurred on training courses or professional development directly related to your business activities are allowable.

g) Home Office Expenses: If you work from home, you may claim a portion of your household expenses, such as utility bills and rent, as allowable expenses. This must be calculated fairly and proportionally.

h) Financial Costs: Bank charges, credit card fees, and interest on business loans are examples of allowable financial expenses.

2. What You Can’t Claim

It’s essential to know the expenses that cannot be claimed as allowable, as attempting to do so can lead to penalties and legal issues. Non-allowable expenses include personal expenses, client entertainment costs, fines, and any expenses incurred for non-business purposes.

3. Record-Keeping

To ensure smooth sailing during HMRC audits, maintaining accurate and detailed records is crucial. Keep receipts, invoices, and any other supporting documents for all claimed expenses. Utilising accounting software can simplify this process and provide a clear overview of your financial transactions.

4. Tips for Maximising Allowable Expenses

a) Stay Informed: Tax laws and regulations change, so it’s vital to stay updated with the latest changes. Consult with a qualified accountant to ensure you’re aware of all allowable expenses and claim them correctly.

b) Seek Professional Guidance: Navigating through tax laws can be daunting. Hiring an experienced accountant will not only help you optimise allowable expenses but also ensure compliance with all HMRC rules.

c) Proper Allocation: If you use certain assets or resources for both personal and business purposes, ensure you claim only the proportion that relates to your business.

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