Self Assessment - allowable expenses and reliefs
Self Assessment taxpayers across the UK are paying thousands of pounds more than they need to simply because they are not claiming all of the deductions and reliefs to which they are entitled.
Many self-employed people simply do not know what they can claim for, and end up paying far over the odds as a result.
So what are some of the main expenses for which you might be able to claim?
What types of relief can I claim?
There are two main types of relief available to Self Assessment taxpayers. The nature of your expenditures will determine which reliefs you claim.
The first type of expenditure is referred to as capital expenditure. Broadly speaking, capital expenditure refers to money spent on assets that you will keep in order that your business can make a profit. As an example, HMRC talks about a company van. If you buy a van for your business, this will count as capital expenditure and there will likely be some relief available. On the other hand, if you hire the van this will not count as capital expenditure – because you will not keep the asset.
The second type of expenditure is known as business expenditure. This covers things like the purchase of consumables. You can offset this expenditure against tax, provided that it is not specifically non-allowable – that is, provided that HMRC has said you can’t claim for it. For example, entertaining expenses will not be counted as allowable expenditure.
What might I claim as a self-employed person?
There is perpetual confusion about what can and cannot be claimed. In some cases the guidance given by HMRC is unclear; in other case it is open to misinterpretation.
Business expenditure is treated as an allowable expense if it is not specifically non-allowable, and if it is “wholly and exclusively” for business purposes. Somewhat confusingly, this does not necessarily mean that you cannot claim for the cost of something that you also use for personal purposes. However, the personal use must be incidental, and must not constitute the reason for purchase. Alternatively, you must be able to clearly delineate between personal and private use and only claim the amount associated with the business use.
The expenses you claim will of course depend on the nature of your business. But there is a range of common expenses for which many self-employed people claim. These include professional fees (for example accountancy costs), the cost of your premises (for example rent and utilities), and the cost of finance.
It is important to remember that stock is treated as a business expense, not a capital expense.
Many self-employed people miss out on important and potentially valuable allowable expenses. Amongst the most common of these is subsistence. If you have to travel to a temporary place of work you may be able to claim for ‘subsistence costs’ - for example the price of a meal. An example of a temporary place of work would be a client’s office.
If you have to spend money that you would not otherwise have to spend if you did not have to travel, you can claim this as an allowable expense. For example, if you have to eat in a restaurant or buy lunch when you would otherwise eat at home, you can claim this back.
How do I record my expenditure?
It is vital that you keep accurate records of your business expenditure. You have a legal responsibility to do this – but in addition, you cannot claim your expenses unless you have the paperwork to back it up. It is therefore important that you keep your receipts, and record your expenditure in an efficient manner.
The simplest solution is to enter your expenditure into bookkeeping software as you go. This will help to give you an accurate view of your current financial position, and will save you the hassle of trawling through piles of receipts when you come to fill in your tax return. You may want to read our round-up of online accountancy software for some recommendations.
Remember that you are required to keep any information used to help you complete your Self Assessment tax return for at least 22 months following the end of the tax year to which it relates. If you are operating a business or letting property, you must keep the records for five years and 10 months following the end of that tax year.
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