Allowable business expenses are a legitimate way to reduce the amount of tax you pay.
Many see it as yet another perk for the self-employed. Not only do these elites get rid of their overbearing boss and work the hours they choose (that one will be hotly debated), but their nirvana also means they can get one over on HMRC because they can put every expense they incur against tax.
If that’s what you think, you’re going to be disappointed. Being self-employed can offer a flexible approach to work, but it’s important to remember you can’t subtract all your self-employed expenses (or personal ones).
The powers that be at HMRC have clear rules about you can and can’t claim.
What are your allowable expenses?
The self-assessment tax deadline for the year 2019-2020, is just around the corner on 31st January 2021.
Working out what your allowable expenses are will help you determine how much tax you have to pay. It can be a minefield, so to help you out, we’ve divided these “allowables” into sections so you can identify the ones that apply to you.
Legitimate office expenses include business stationery, printing costs (including printer paper and ink), postage, computer software (used for less than two years), internet, phone and mobile bills. It also includes equipment, such as computers, printers and software, although you may have to claim these as capital allowances.
Legitimate expenses include rent, utilities, maintenance and repair and insurance. If you work from home, you can include a proportion of your home utility bills.
Thanks to the current COVID restrictions, no one’s doing much travelling at the moment. But when you can start to get out and about again your travel costs can include fuel, train fares, taxis, hotel rooms, meals (for you only – you can’t claim for client entertainment), hire fees, servicing, repairs and vehicle insurance.
Under this section, you can include bonuses and benefits, pension and NI contributions, training courses and agency fees. However, salaries are not allowable expenses.
Other odds and sods
Other allowables are your stock’s cost, raw materials and any direct costs that occur when producing your goods. Some legal and financial charges, business insurances, marketing, subscriptions and clothing associated with your work (e.g., PPI, uniforms, etc.)
Logging your expenses correctly is the key
Throughout the year your business is going to accrue a lot of expenses. Sorting through your shoebox of receipts at the eleventh hour as you pull an all-nighter to beat the self-assessment deadline is not only stressful but also a poor use of your time.
Businesses lose out financially every year because they didn’t keep accurate records of their expenses.
Keeping track of your allowable expenses
Right now (2021), your business is struggling to cope under the combined pressure of Brexit and COVID. Don’t add to the burden by losing out financially because of unclaimed allowable expenses.
Yes, keeping track of your paper receipts (and other costs) is a laborious task, but it could potentially be a lucrative one too. Creating a system whereby all your receipts are digitised for easy processing will ensure you get the maximum financial relief possible on your tax bill.
Timewise VA will help you save time and money by tracking and recording your expenses accurately using Receipt Bank. Find out more by calling the team on 0161 211 9837.