Once you start working on a self-employed basis, you’ll soon realise just how pricey it can be to run any sort of business. No matter what type of goods or services you offer, you’re going to incur lots of expenses. But the good news is that some of those expenses are tax deductible.
What are tax deductible expenses?
When you’re calculating your total profit as a self-employed person over the course of a year, you can deduct certain expenses from your total profits. This means you won’t have to pay tax on all of your profits.
So let’s say your self-employed business earns £30,000 in a tax year. If your tax expenses add up to £10,000, you’ll only have to pay tax on £20,000. This final figure is known as your taxable profit.
But here’s where it gets complicated: Not all expenses are eligible for tax deductions. HMRC offers clear guidelines on what does and does not count as an allowable expense. The idea is that you only deduct expenses that are directly related to your business.
So let’s take a look at the allowable expenses for the self-employed.
Self-Employed Allowable Expenses
You can find the complete Government guidelines to allowable expenses for the self-employed here. Let’s take a quick look at the sort of things you can include:
You can claim back on items you’d normally use for less than two years. Examples include stationery, rent, rates, power, and insurance costs.
Find out more about office expenses
The only things you cannot claim back are non-business driving or travel costs, fines incurred while travelling, or travel between your home and your work. Apart from that, generally all travel costs count as allowable expenses, including vehicle insurance, fuel, parking, repairs, servicing, public transport, hotel rooms, and even meals bought on overnight business trips.
You can’t claim back the amount you pay for everyday clothing, even if you wear it to work. But you can claim back expenses for uniforms and protective gear. And if you’re an actor or an entertainer, you can claim back on costumes.
Allowable business expenses include employee salaries, bonuses, pensions, benefits, agency fees, and the costs of any relevant training courses. However, you cannot claim for carers or domestic help. So if you work from home and you hire a cleaner, even though that cleaner’s technically cleaning your business premises, you still cannot claim back the expenses.
You cannot claim for anything you buy for your own private use, and the depreciation of equipment does not count as an allowable expense. But you can claim for any stock you buy for your business, whether it’s goods for resale or raw materials. You can also claim for the direct costs from producing goods.
Legal and finance costs
You can claim for the cost of hiring accountants, solicitors, surveyors and architects – so long as you hire them for business purposes. You can also claim costs for professional indemnity insurance premiums, and for any other insurance policy you take out specifically for your business. As for finance, you can claim for bank, overdraft and credit card charges, but you cannot claim for the repayment of loans, overdrafts and finance arrangements.
Most marketing costs count as allowable business expenses, from the costs of designing and hosting your website, to the costs of advertising in newspapers or directories. If you subscribe to any trade or professional journals, or any trade bodies or organisations, you can claim back those costs too. But you cannot claim back on anything that isn’t directly related to your business, including gym memberships, event hospitality, or the costs of entertaining clients, suppliers and customers.
Training and development allowance
The Government guidance states that you can claim back on training that “helps you improve the skills and knowledge you use in your business”. The guidance is vague on what counts (they just specify “refresher courses” as an example). But they’re clear that you can’t claim back on courses that help you start a new business, or expand into new areas of business – even if these new areas are related to your current business.
If you have any questions about allowable expenses for self-employed workers, you’ll find lots of guidance and resources on the Government’s website.
Business Insurance for Self-Employed Freelancers and Contractors
At Tapoly, we specialise in bespoke insurance cover for self-employed freelancers and contractors. Our policies start from just 35p a day. And as the Government guidance makes clear, you can claim back on any insurance policy you take out specifically for your business. So you can get all the cover you need, and at the end of the year, you can subtract the price of your policy from your taxable profit!
You can get an online quote in the space of a minute. Head here to learn more.