If you’re self-employed, mandated expenses can reduce your Self Assessment tax bill.
In this article, we talk well-nigh how your merchantry can requirement when money.
Here’s what we cover:
- Income tax relief: How you can reduce your tax by ultimatum on merchantry expenses
- Self-employed mandated expenses list
- What expenses can I requirement when working from home?
- How can I track my mandated expenses?
- How do I requirement my self-employed merchantry expenses?
- Final thoughts on mandated expenses
Income tax relief: How you can reduce your tax by ultimatum on merchantry expenses
As a sole trader or freelancer, it’s crucial to understand your vital mandated expenses—even if you’re paying an purser to help with your tax return.
You can requirement tax when on some of the financing of running your business—what HMRC calls mandated expenses. These towards as financing in your merchantry finance deducted from the profit you pay tax on.
Expenses can reduce the stereotype sole trader’s tax bill—often significantly.
For example, if your turnover is £80,000 and you requirement £20,000 in allowable expenses, you only pay tax on the remaining £60,000—a substantial saving.
You can moreover use simplified expenses.
These unappetizing rates indulge you to quickly summate tax relief on vehicles, working from home and living on your merchantry premises. It can make working your expenses significantly easier.
On the Gov.uk website, you can find the most worldwide expenses you can claim for self-employed and the most worldwide expenses you can claim for if you rent out a property.
Self-employed mandated expenses list
Below we imbricate some of the things you can requirement for. To reiterate, we seem you’re using mazuma understructure accounting, as the rules for traditional written can be slightly different.
You can add these figures to your self-assessment tax return.
Office equipment and tools
You can requirement expenses for merchantry equipment such as laptops, PCs, printers, and computer software that your merchantry has used for less than two years.
You can’t requirement tax when on small tools.
Stationery and communications
As well as the usual paper, envelopes and pens, you can moreover requirement when tax on postage and printing, including the financing of printer ink and cartridges that you use as part of your business.
With increasingly businesses now trading online, this wage moreover applies to electronic communications – so you can requirement tax when on your merchantry phone, mobile and internet bills.
Phone and internet
If you use your phone, mobile and internet for personal and merchantry use, you’ll need to demonstrate a realistic way of dividing the financing and can only requirement tax when on the part for merchantry use.
If you can’t show this, you can’t requirement any tax back.
Professional and financial services
If you get advice from an accountant, lawyer or other professional as part of your business, you can requirement tax when on their fees.
You can moreover requirement mandated expenses for hiring surveyors and architects for your business, just not for personal home improvements.
If you have a merchantry wall account, you can requirement tax relief on bank, overdraft and credit vellum charges or interest on merchantry loans.
You can moreover requirement tax when on rent purchase, lease, or other financial payments for equipment you use in your business.
Contributions to your pension are not a merchantry expense, so they don’t stupefy your self-employed profits. However, you are eligible for tax relief on any contributions you make, which your pension provider will automatically claim.
Staff and employee costs
You can requirement tax relief on employee and staff salaries, bonuses, pensions, benefits, staff and employee costs, organ fees, subcontractors, and employer’s National Insurance contributions.
There’s a host of mandated expenses you can requirement for if you must travel for business, including train, bus, taxi, airfares, and walk-up costs.
But these only wield if the primary reason for your journey or stay was for business.
If you take a trip that combines merchantry and pleasure, you can only requirement tax relief on financing that you can show are separate from the private part of your journey.
If you can’t split up the costs, you can’t requirement tax relief on any part.
Car and vehicle costs
If you use a vehicle as part of your business, you can requirement tax relief for expenses such as petrol, insurance, and repairs.
As a self-employed person, you can add up all your motor expenses for the year and work out the separate merchantry element of the total cost.
However, keeping track and working this out takes time and effort.
Instead, you can requirement mileage allowance, a simplified expense that lets you summate the financing for running your vehicle.
Other vehicle-related areas you can requirement expenses on include:
- Breakdown cover
- Hire charges.
Again, tax relief only applies to these if they are merchantry rather than private expenses.
You can’t requirement tax when on parking or other fines incurred while driving. There’s no tax relief for breaking the law.
Food and clothing
Everybody needs supplies and suit but ultimatum for them on expenses depends on what you’re using them for.
Generally, you can’t requirement for suit if it’s something you’d wear as part of an everyday wardrobe. So, plane if you’ve bought a suit for work, you can’t requirement for its cost.
But, if you must buy a uniform that identifies what you do or needs special protective suit to do your job, you can requirement for that.
You can’t requirement for non-uniform items such as shoes and socks.
If you’re an entertainer, and the gown you’re ownership are a costume for a stage, TV or mucosa performance, then you can requirement tax relief on those.
Clowns, magicians, acrobats and Elvis impersonators – we bet HMRC enjoys reading your suit claims!
If you wear a uniform or special protective clothing, you can requirement expenses if you wash, repair, or replace it.
You can only requirement money when on supplies and drink if it’s a merchantry expense, meaning it must be outside your usual working routine, such as a merchantry trip.
Stock and materials
You can requirement tax when on:
- Items that you resell, e.g. stock
- Raw materials that you use to make goods for sale
- Direct financing from producing goods.
Marketing and advertising
You can requirement tax when on the financing of razzmatazz and marketing your business, including financing for hosting and maintaining your visitor website.
But beware, you may think that treating a consumer or supplier to lunch is ‘marketing’, but HMRC considers it as ‘entertaining’, which you can’t requirement tax when for.
If you’re a member of a professional trade soul or organisation as part of your business, you can requirement tax relief on your membership fees. Subscriptions to trade or professional journals are moreover mandated expenses, so requirement for those too.
Read increasingly well-nigh Self Assessment
- How to file a Self Assessment tax return online: A step-by-step guide
- Self Assessment: A guide for small businesses on filing tax returns
- 7 tips to get your Self Assessment tax return right
- How to make Self Assessment less stressful for your practice
- 7 top tips for filing your Self Assessment tax return
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What expenses can I requirement when working from home?
As a sole trader, you may run your businesses from home.
In this case, you can only requirement tax when on the proportion of those expenses that relate to the space you use for your business, including heating, electricity, steering tax and mortgage interest.
You’ll need to find a realistic way of dividing the costs.
You may divide your bills equal to the number of rooms you use for your merchantry or the time you spend working from home.
How can I track my mandated expenses?
You should track your merchantry expenses throughout the year and alimony organised records. If you are unincorporated or a sole trader, you must alimony records for five years without 31 January of the relevant tax year.
Ideally, you’d use accounting software, which saves time and is increasingly well-judged than using spreadsheets.
It should let you import expenses and receipts—if you have paper receipts, you can often snap and capture them digitally.
How do I requirement my self-employed merchantry expenses?
You work out what you can requirement when and add the details to your tax return.
If you’ve kept your expenses organised (adding them to accounting software will help you unzip this), that will make this process easier.
And ultimately, it could be a matter of giving a single icon for your mandated expenses or providing a detailed dispersal on your tax return.
Either way, you should virtuously work out your expenses in specimen HMRC comes when with questions.
Final thoughts on mandated expenses
Understanding mandated expenses can make all the difference to your mazuma flow.
If you know what you can and can’t requirement back, it makes things much easier come tax return time.
While we’ve covered some key expenses you can requirement back, getting support from an purser or tax tipster can make all the difference here.
Give yourself plenty of time to get your throne virtually your mandated expenses, speak to the experts if you need to, and ensure you don’t have to pay increasingly tax than is required.
Editor’s note: This vendible was first published in December 2019 and has been updated for relevance.
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