As a self-employed individual running your own business in England, understanding what expenses you can claim for tax purposes is crucial. This guide outlines the allowable expenses for the 2023/24 tax year, helping you maximise your deductions and ensuring compliance with HMRC regulations.
1. Understanding Allowable Expenses
Allowable expenses are business-related costs that you can deduct from your taxable income. These expenses must be wholly and exclusively for business purposes. If an expense has both personal and business elements, you can only claim the business portion.
2. Common Allowable Expenses
Here are the main categories of allowable expenses you can claim:
a. Office Costs
- Stationery and Office Supplies: Costs for paper, pens, postage, printing, and other office supplies are fully deductible.
- Office Equipment: This includes computers, printers, and software used for your business. If equipment has a significant value, it might be treated as a capital expenditure, which is deductible through capital allowances.
b. Premises Costs
- Rent: If you rent office space or a shop, the cost is fully deductible.
- Utilities: Business-related utility bills (electricity, heating, water) are allowable expenses.
- Business Rates: Local business rates are deductible.
- Maintenance and Repairs: Costs for maintaining or repairing your business premises can be claimed, but improvements (like adding a new extension) are capital expenditures and handled differently.
c. Travel Expenses
- Vehicle Costs: You can claim for fuel, insurance, repairs, and servicing if the vehicle is used for business. Alternatively, you can use the simplified mileage rates (45p per mile for the first 10,000 miles, 25p thereafter).
- Transport: Train, bus, taxi, or air travel for business purposes are allowable.
- You cannot claim for travel to and from work unless you're travelling to a temporary place of work.
- If you have to travel for your work you may be able to claim tax relief on the cost or money you’ve spent on food or overnight expenses. You can claim tax relief for money you’ve spent on things like:
- Public transport costs
- Hotel accommodation if you have to stay overnight
- Food and drink
- Congestion charges and tolls
- Parking fees
- Business phone calls and printing costs
- Accommodation and Subsistence: If you travel for work and need to stay overnight, hotel costs and meals are deductible.
- For hotel and meal expenses, you'll need to send receipts that include the date of your stay or of the meal and the name of the hotel or restaurant.
- You may also be able to claim tax relief on business mileage.
d. Marketing and Advertising
- Advertising: Costs for promoting your business through online ads, print ads, or other media.
- Website Costs: The costs associated with creating and maintaining a business website are allowable.
- Networking Events: Fees for attending business networking events or exhibitions.
e. Professional Fees
- Accountancy and Legal Fees: Costs of hiring an accountant, solicitor, or other professional services that directly relate to your business are deductible.
- Subscriptions: Memberships to professional bodies or trade associations are allowable expenses if they are relevant to your business.
f. Staff Costs
- Employee Wages: Salaries, bonuses, and pensions paid to employees are deductible.
- Subcontractor Costs: Payments to subcontractors for work done are also allowable.
- Training Costs: Fees for training courses that improve skills related to your business.
g. Stock and Materials
- Purchases: The cost of raw materials or goods for resale.
- Storage: Costs of warehousing or storing stock.
h. Insurance
- Business Insurance: Costs for public liability, professional indemnity, and other relevant business insurance policies.
i. Financial Costs
- Bank Charges: Business-related bank charges, overdraft fees, and credit card charges are deductible.
- Interest on Business Loans: Interest on loans taken out for business purposes can be claimed, but only the interest portion, not the repayment of capital.
j. Capital Allowances
For more substantial business assets (like vehicles, machinery, or large equipment), instead of claiming the full cost as an expense, you may need to use capital allowances. For 2023/24, the Annual Investment Allowance (AIA) allows you to deduct 100% of the cost of qualifying plant and machinery, up to £1 million.
k. Working from Home
If you work from home, you can claim a proportion of your home expenses. This includes:
- Utility Bills: A portion of your home's heating, electricity, and water costs.
- Council Tax: The business-use proportion of your council tax.
- Mortgage Interest or Rent: The business-use proportion of your mortgage interest or rent.
Alternatively, you can claim a flat rate allowance of £10 per month if you work 25-50 hours a month from home, increasing based on hours worked.
3. Record Keeping and Compliance
To claim these expenses, it is vital to keep accurate and detailed records, including receipts, invoices, and bank statements. You need to retain these records for at least five years after the 31 January submission deadline of the relevant tax year. Failure to maintain proper records can result in penalties from HMRC.
4. Simplified Expenses
HMRC offers simplified expenses for certain costs, like vehicle use, working from home, or living on your business premises. These flat rates simplify the process but might not always be the most tax-efficient option. Compare simplified expenses with actual costs to see which offers the greater deduction.
5. Filing Your Self-Assessment
You will report your business expenses on yourself-assessment tax return, which must be filed by 31 January following the end of the tax year (i.e., by 31 January 2025, for the 2023/24 tax year). The deadline for paper returns is earlier, on 31 October 2024.
6. Common Mistakes to Avoid
- Claiming Personal Expenses: Only claim expenses that are wholly and exclusively for business purposes. Mixed-use expenses need to be carefully apportioned.
- Overlooking Small Expenses: Even small costs like postage or minor repairs add up, so ensure you capture all allowable expenses.
- Ignoring Capital Allowances: For significant purchases, capital allowances can offer substantial tax relief.
Conclusion
Understanding and correctly applying allowable expenses can significantly reduce your taxable income, leaving more money in your business. Stay informed about the latest regulations and keep diligent records to ensure your self-assessment return is accurate and optimised.
For more detailed guidance or to address specific circumstances please feel free to reach out to use at info@schoolgateaccounts.co.uk. We would be happy to help you.
