When you are starting your self-employed journey, there are so many things you must consider. Perhaps you aren’t used to keeping records of things: you have to formalise your invoices, keep track of how many you send out, as well as the dreaded business expenses.
But what is a business expense?
A business expense is anything that you may have spent money on, to facilitate the running of your business. When you do your tax returns at the end of the year, you will include your business expenses, and claim them back from your tax. Keeping track of your business expenses can save you huge amounts of money in the long run.
If you earned £25,000 in a tax year, but your allowable expenses added up to £5000, you would only need to pay tax on the remaining £20,000. This is why it is really important to calculate your allowable expenses accurately.
What counts as a business expense?
Some common, yet often overlooked, business expenses are listed and explained below.
This is potentially the most obvious one. It includes stationery, printing costs, printer ink and postage. Equipment such as computers, printers and computer software do count, but these may fall into the capital allowance category.
If you work in an office, you can claim back on the rent, maintenance, repair, utility bills, insurance and security costs. This can add up to a hefty amount! However, you can’t claim it back if you are either buying or building a property.
If your home is your office, you will have to work out both the proportion of your home that is used for business, and how much of the month you use it for. If you work from home for more than 25 hours of the month, you can use ‘simplified expenses’ which is a flat monthly rate.
If your car or van is used for your business, this too counts as allowable expenses. This insurance, fuel, hire, repairs, servicing and breakdown cover. Once again, there is a simplified flat rate you can use.
Travel expenses also include any costs incurred during a business trip. This includes hotel rooms and meals during overnight trips. However, commuting costs do not count.
If you are travelling for a mixture of business and pleasure, you must separate the business cost out and only claim that portion back. You are not allowed to claim back for corporate events or entertaining clients.
Stock and materials
Any stock, raw materials or resource costs from producing your wares counts as allowable expenses.
The price of any insurance that you are legally required to have for the purposes of running your business is claimable.
These may include paying a marketing agency, newspaper adverts, social media boosts, mailshots, free samples and website costs.
Any uniform, PPE or otherwise specialised clothing that you need for work may be claimed. Every day, normal clothes however do not count.
Paying your staff salaries adds towards the amount you are allowed to deduct from your taxable expenses. This includes their bonuses, pensions, benefits, employer National Insurance and agency fees.
If you are a paid member of any trade bodies or professional organisations, you may claim back on tax for these.
Legal and financial costs
Any lawyers, accountants, surveyors etc you may need to hire for the purposes of your business count as allowable expenses.
This means if you were to hire an accountant, their fee would be deductible from your taxable total, meaning that you could actually save money by using an accountant’s services.