When it comes to completing your tax return, you may be wondering what expenses you can offset against your sales. Some expenses are obvious, for instance; the materials you’ve purchased to make your products, but other expenses may not be so obvious.
For some expenses, you can claim a flat rate allowance rather than keeping detailed records and working out the allowable element. This is known as “Simplified Expenses”. It includes travel where you can claim a flat rate mileage figure instead of working out a business proportion of all your motor expenses. Another example is Use of Home as office where you can claim a flat rate allowance depending on the approximate amount of time you work from home rather than working out a proportion of all your utility bills.
Working out what you can claim as a business expense can be very tricky but it is important to get this right so you know you are paying the right amount of tax.
Let’s look at these in more detail.
Home office expenses
You may not be aware that you can claim for use of home expenses if you work from home, this is mainly to cover the extra electric, heating and lighting that is likely to increase as you work from home. To make things even easier you can use a daily flat rate amount, set out by HMRC.
If you use the internet whilst working from home you can claim a percentage of these broadband costs, you can also claim a percentage of your mobile phone or landline costs if you do not have one specifically for business use.
Larger items can also be claimed such as your office desk, chair and computer, don’t forget any software you may need for your computer.
Travel & Vehicle Expenses
Many self-employed people have a vehicle they use for both business and private journeys but only the business element can be claimed as an allowable expense. The simple method is ‘claiming mileage’ for the business miles you do but if you have high vehicle expenses then a proportion of the total costs, for instance; repairs, fuel, insurance, tax etc could be more accurate.
The capital cost of your car or van can be claimed against your profits using capital allowances but if you use the vehicle for business and private journeys you will only be able to claim a proportion of the cost that relates your business.
Other business-related travel costs, parking and bridge tolls can be claimed but parking fines and speed awareness courses cannot.
The cost of food and drink becomes an allowable expense when you are travelling outside of your usual work pattern i.e. you are attending a meeting or seminar and you need to buy your lunch or coffee whilst you are out and about.
Marketing, Entertaining and Sponsorship
The cost of marketing including newspaper advertising, directory listings, mailshots, free samples and website costs can be claimed.
Entertaining people can be a very enjoyable part of being in business and can help to build working relationships with your staff, customers and suppliers.
Entertaining customers and suppliers, however, is not an allowable business expense. HMRC consider “entertaining” to be providing free or subsidised hospitality. This can include such things as food and drink, theatre or sporting event tickets, free samples and business gifts but the list goes on.
If your business sponsors a local sporting team and they have your logo displayed on their kit or on a board at the ground, then this can be claimed as an allowable expense as long as you don’t receive any personal benefit from the payment. You need to carefully assess the benefits you receive as a result of your payment to determine if the cost remains allowable.
Clothes can only be claimed if they are a uniform or costume or are safety items such as high vis jackets and steel toe boots. Anything with a possible duel use, such as suits or office wear cannot be claimed.
If you have a business bank account, the charges that relate to this can be claimed. It is the same for fees relating to a business credit card and also PayPal fees.
Training courses can be put through but this is only if you are maintaining a current skill or they are directly related to your business.
Accountancy fees can also go through but HMRC penalties and interest cannot.
Good try but sadly not…
HMRC usually publish some of the most outlandish claims people have tried to claim as business expenses. Some questionable items which taxpayers have tried to expense in 2017:
- A three-piece suite for my partner to sit on when I’m doing my accounts.
- Birthday drinks at a Glasgow nightclub.
- Vet fees for a rabbit.
- Hotel room service – for candles and prosecco.
- £4.50 for sausage and chips meal expenses for 250 days.
Of course, the excuses and expenses listed above were all rejected.
If you have any questions about what you can or can’t claim against your tax, send us a quick message or give us a call and we’ll get back to you.