Got a Self Assessment tax return to fill in but not sure what your business can claim back? Understanding what your allowable expenses are, as HMRC calls them, can really help your business.
This is because expenses reduce your Self Assessment tax bill.
It’s not quite like getting stuff for free, but it’s the next best thing. If you have to pay the money anyway, as tax, why not have it pay for the things your business needs by creating expenses claims?
Here’s what this article covers:
Do you need to file a tax return?
Not sure if you need to file a Self Assessment tax return in the first place? If you’re self-employed as a sole trader or the partner in a business partnership, then you will have to.
And remember the deadlines for filing your Self Assessment tax return. It was midnight on 31 October 2020 for the paper version and midnight on 31 January 2021 if you submit it online. For obvious reasons, the latter is the more popular option.
However, as a one-off measure for the 2019/20 tax year, you can submit your Self Assessment tax return as late as midnight on 28 February 2021 without incurring a penalty.
HMRC has said it intends to legally require all tax submission to be entirely digital (via software) in the coming years. Doing it online from day one of trading makes sense.
Below, we assume your business is using cash basis accounting, where you declare your income or expenditure only when it goes in or out of your business.
These have slightly more liberal rules when it comes to expenses compared to other accounting methods that can be used, such as traditional (accrual basis) accounting.
Check with an accountant if you’re not sure which method your business needs.
Being clear on allowable expenses
Even if you’re paying an accountant to help with your tax return, it is useful to have a basic understanding of your allowable expenses so you can have the right discussions about your business affairs.
You can claim tax back on some of the costs of running your business, or what HMRC calls ‘allowable expenses’. These appear as costs in your business accounts and will be deducted from the profit that you pay tax on.
In other words, expenses can reduce the average sole trader tax bill – and often significantly.
HMRC lists out many of the most common allowable expenses for different types of income, so it’s worth searching the internet to find the official guidance.
Two examples of this: at the Gov.uk website, you can find the most common expenses that you can claim for if you are self employed and the most common expenses you can claim for if you rent out a property.
Allowable expenses you can claim back
Below are some things you can claim for. Just to reiterate, we assume you’re using cash basis accounting, and the rules for traditional accounting can be slightly different.
Remember that you can also use simplified expenses. These are flat rates that you can use to calculate tax relief on vehicles, working from home and living on your business premises, and can make working out expenses significantly easier.
1. Business premises
Many sole traders run their businesses from their home, in which case you can only claim tax back on the proportion of those expenses that relate to the space you use for your business, including heating, electricity, council tax and mortgage interest.
You’ll need to find a realistic way of dividing the costs. You may be able to divide your bills according to the number of rooms you use for your business, or the amount of time you spend working from home.
2. Stationery and phone bills
As well as the usual paper, envelopes and pens you can also claim back tax on postage and printing, including the costs of printer ink and cartridges that you use as part of your business.
With more businesses now trading online, this allowance also applies to electronic communications – so you can claim tax back on your business phone, mobile and internet bills too.
If you use your phone, mobile and internet for both personal and business use, you’ll need to demonstrate a realistic way of dividing the costs and can only claim tax back on the part that’s for business use.
If you can’t show this, then you can’t claim any tax back.
You can also claim tax back on computer software that your business uses for less than two years, or if you make regular payments to renew your licence to use it.
Read more about Self Assessment
- How to file a Self Assessment tax return online: A step-by-step guide
- Self Assessment: A guide for small businesses on filing tax returns
- 7 tips to get your Self Assessment tax return right
- How to make Self Assessment less stressful for your practice
- 7 top tips for filing your Self Assessment tax return
3. Professional and financial services
If you get advice from an accountant, lawyer or other professional as part of your business, then you can claim tax back on their fees.
You can claim allowable expenses for hiring surveyors and architects for your business too, but not just for personal home improvements.
If you have a business bank account, you can claim tax relief on bank, overdraft and credit card charges, or on interest on business loans.
You can also claim tax back on hire purchase, lease or other forms of financial payments for equipment that you use in your business.
4. Staff and employee costs
You can claim tax relief on employee and staff salaries, bonuses, pensions, benefits staff and employee costs, agency fees, subcontractors, and employer’s National Insurance contributions.
5. Travel costs
There’s a whole host of allowable expenses you can claim for if you have to travel for business, including train, bus, taxi, air fares and accommodation costs.
But these only apply if the primary reason for your journey or stay was for business.
If you take a trip that combines business and pleasure, you can only claim tax relief on costs that you can show are separate from the private part of your journey. If you can’t split up the costs, you can’t claim tax relief on any part.
If you use a vehicle as part of your business, you can claim tax relief on:
- Vehicle insurance
- Repairs and servicing
- Breakdown cover
- Hire charges
- Vehicle licence fees.
Again, tax relief only applies to these if they are business, rather than private expenses.
You can’t claim tax back on parking or other fines incurred when you’re driving. There’s no tax relief for breaking the law.
Generally, you can’t claim for clothing, which is to say something you’d wear as part of an everyday wardrobe. So, even if you’ve bought a suit for work, you can’t claim for its cost.
But, if you have to buy a uniform that identifies what you do, or you need special protective clothing to do your job, you can claim for that. You can’t claim for non-uniform items such as shoes and socks.
If you’re an entertainer, and the clothes you’re buying are a costume for a stage, TV or film performance, then you can claim tax relief on those.
Clowns, magicians, acrobats and Elvis impersonators – we bet the HMRC enjoys reading your clothing claims!
7. Stock and materials
You can claim tax back on:
- Items that you resell, e.g. stock
- Raw materials that you use to make goods for sale
- Direct costs from producing goods
8. Marketing and advertising
You can claim tax back on the costs of advertising and marketing your business. As well as traditional print marketing, that can include costs for hosting and maintaining your company website.
But beware, you may think that treating a customer or supplier to lunch is ‘marketing’, but HMRC considers it as ‘entertaining’ which you can’t claim tax back for.
If you’re a member of a professional trade body or organisation as part of your business, you can claim tax relief on your membership fees. Subscriptions to trade or professional journals are also allowable expenses, so claim for those too.
Editor’s note: This article was first published in December 2019 and has been updated for relevance.
Boss your tax returns with our Self Assessment guide
Is filing your Self Assessment tax return a struggle or is it the first time you're doing it? Check out our step-by-step guide, which covers what you need to know.