HM Revenue & Customs (HMRC) will allow claims for a wide range of expenses. While most business owners probably already know about many of them, like office supplies, tools, and business vehicles, there are many more obscure deductions that could potentially save the UK workforce hundreds of pounds.
HMRC has strict rules on what can be claimed as expenses for the self-employed or a sole trader. For self-employed expenses to be classed as allowable expenses, they must have been explicitly incurred due to the running of your business.
A spokesperson from small business insurers, Toolbox by Admiral, said: ďAs businesses navigate the ever-changing landscape of finance and expenses, it's important to stay informed about the eligible deductions that can positively impact the bottom line. It can take a bit of effort to figure out which costs count as allowable expenses.
ďTo help, weíve rounded up ten things you might not know count as a business expense - so you donít have to.
ďWhether youíre just starting out in business or are getting ready to file your tax return, we hope to help outline what business expenses you can claim as a sole trader or limited company.Ē
Ten business expenses eligible for deductions:
Toolbox advises if you want to lower your tax bill even further, you should make sure youíre claiming all of these surprising and often lesser-known allowable expenses.
1. Tax allowance for equipment or tools
If you need to buy tools or equipment for your business, you can exclude these costs from the calculation of your earnings as an expense. Please note that the tools and equipment shouldnít be used privately by employees.
You could also think about claiming a tool allowance if youíre an employee who buys tools for work. If youíre not reimbursed directly by your employer, you could claim tax relief through your tax code.
2. Financial and legal costs
Many financial and legal costs will count as allowable business expenses and qualify for tax deductions.
When itís time to fill out your Self Assessment, donít forget to include:
Fees for accountants, solicitors, surveyors, and architects for business reasons
Professional indemnity for insurance premiums
Bank, overdraft, and credit card charges
Interest on bank and business loans
Hire purchase interest
Alternative finance payments, like Islamic finance
Please note that legal fines youíre given for breaking the law canít be claimed, for example - a speeding ticket when travelling to work.
3. Unpaid invoices and bad debt
If youíve ever dealt with, or are currently dealing with, a tricky customer where any invoices and debts canít be recovered, this business expense could relieve some stress. If you use traditional accounting, you can claim back money that you wonít be receiving from the customer.
These are called bad debts. You can only write them off if youíre sure they wonít be recovered in the future. Itís worth noting that you canít claim them if you use cash basis accounting either.
There are some exemptions, such as debts that are not included in your turnover and debts related to the disposal of fixed assets.
4. Tax relief on charitable donations
Individuals can donate to charity without paying tax if they give through Gift Aid, or from their wages or pension through Payroll Giving.
Any donations you make through the Payroll Giving scheme are taken before your income tax is calculated. This means you wonít pay income tax on the amount you donate, but National Insurance will be applied.
5. Tax on business phone lines
Paying for you or your employees to have a home phone can include expenses such as telephone line rental, business-related call charges, and private call charges. Better still, if the phone is only used for business calls, you donít have to worry about deducting or paying PAYE or National Insurance (NI).
This means you can remove the cost of running the business phone line from your profits as an allowable business expense.
6. Plant and machinery
When you buy assets for your business, you could claim capital allowances on them*. In most cases, you can deduct the itemís whole value from your profits before paying pax. However, if you owned it before it was used in your business, or if it was a gift, you can only take away its market value.
You can claim capital allowances on business cars and vehicles, some fixtures like kitchens or bathrooms, and more!
7. Employee training payments
You can claim employee training costs as a business expense, as long as the travel, course, or textbooks are solely for work-related training.
8. Employee clothing
You do have to report uniforms to HMRC, but you wonít have to pay tax or NI on most of them. This counts for protective clothing your employees need to do their job, and a uniform that they only wear for work. To be exempt from tax and NI, theyíll have to be essential work-specific items of clothing to class as an allowable business expense.
9. Marketing costs
Another allowable business expense you can claim on your Self Assessment is the majority of your marketing costs. HMRC allows businesses to claim for expenses like:
Advertising in newspapers or directories
Bulk mail advertising
There are some exceptions to this allowance, for example, you canít claim for what you spend on event hospitality, or entertaining clients, suppliers, and customers.
10. Tax relief on subscriptions
And lastly, businesses can add subscriptions and memberships to their expense claims if theyíre work-related. If you have an annual membership with a professional trade organisation for example, make sure to add this to your file.
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