Claiming Expenses on Your UK Self-Assessment

Understanding the concept of business expenses and how they can be claimed on a self-assessment tax return is crucial for any self-employed person in the UK. Knowing which costs you can deduct from your income can significantly lower your tax bill. This article aims to provide insights into the different types of expenses you can claim and the regulations surrounding them.

What Are Business Expenses?

In simple terms, business expenses are costs you have incurred wholly and exclusively in the running of your business. These costs can be deducted from your income to reduce your taxable profit. Less taxable profit means less tax to pay.

Types of Business Expenses

1. Office Costs: This can include stationery, printing costs, computer software your business uses for less than 2 years, and postage costs.
2. Travel Costs: If you use your vehicle for business purposes, you can claim costs such as fuel, parking, vehicle insurance, vehicle licensing fees, breakdown cover, and repairs and servicing. Alternatively, you can use the flat-rate mileage method.
3. Clothing Expenses: You can claim for uniforms and necessary protective clothing required for your work.
4. Staff Costs: Salaries, bonuses, pensions, benefits for employees, agency fees, and subcontractor costs can all be claimed.
5. Reselling Goods: If you buy goods to sell on, the cost of these goods is deductible.
6. Financial Costs: Bank, overdraft, and credit card charges, interest on business loans, leasing payments, and insurance policies can all be claimed.
7. Costs of Your Business Premises: If you rent a business premises, the rent, maintenance, and utility bills can be claimed.
8. Marketing: The costs of advertising, email marketing, free samples, and website costs can be deducted.

Claiming Expenses When Working From Home

If you’re a home-based business, you can claim a proportion of your costs for things like heating, electricity, Council Tax, mortgage interest or rent, internet and telephone use. You can calculate these expenses either by how many rooms you use for business or on a flat rate basis.

Rules to Remember When Claiming Expenses

While claiming expenses can significantly lower your tax bill, it’s essential to remember the rules to avoid penalties:

1. Wholly and Exclusively: For an expense to be deductible, it must be incurred wholly and exclusively for the purposes of the trade. If an expense has a dual purpose (partly private, partly business), it cannot be claimed unless the business part can be distinctly and separately identified.
2. Accurate Records: You must keep accurate and comprehensive records of all expenses claimed. HMRC can ask to see these records up to six years after the relevant tax year.
3. Disallowable Expenses: Certain expenses can’t be claimed, such as fines, client entertainment, or costs associated with buying property.
4. Capital Allowances: Some items, like equipment, vehicles, or machinery, can’t be claimed as a normal expense but instead may qualify for a capital allowance.

Navigating business expenses and deductions can be complex. However, understanding what you can and cannot claim, keeping good records, and seeking professional advice can help you maximise your deductions and minimise your tax liability.