What business expenses can you claim?

A quick summary of corporate taxes

As you probably know, when you’re self-employed, you pay taxes on your business profits, not your sales. This is logical because if your expenses equal your sales, you haven’t earned a cent more. If your expenses exceed your sales, you have made a loss.

As a small business owner, it’s important to keep track of ALL your allowable expenses so you don’t end up paying too much in taxes. At the end of the tax year, you subtract your expenses from your sales to determine your taxable profit. This all happens when you submit your annual self-assessment tax return to HMRC. Here’s a video that explains the entire process, and you’ll find lots more details in this article.

Who will cover my expenses? Will I not receive a start-up grant?

Before I begin: When we say “claim costs,” we are not actually claiming them from anyone. The only person who can pay your expenses is you (your company). Some people who probably have cushy jobs and “work for the man” seem to think that self-employed people receive some sort of government benefit to cover their expenses. Obviously that is not the case.

In rare cases, grants or loans are available for specific projects, but these are few and far between. They also tend to differ signif­i­cantly depending on region and industry. Even then, they usually work on the basis of agreed financing, where you still have to cover 50% of the costs. Maybe you were lucky, but in general the days of 100 percent start-up grants are over. You can search You can find corporate financing and funding programs here But don’t get your hopes up.

Back to the topic: What expenses can you actually claim? How about driving a vehicle around the company and using your home as an office?

Some general assumptions

To keep things as simple as possible, I’ll assume:

• You are self-employed in the UK
• They use the “cash basis” billing method.
• Your annual turnover is under £85,000

I speak mostly from the perspective of someone living in England. However, I think the rules are more or less the same in Scotland, Wales and Northern Ireland — please let me know if I’m wrong and I’ll update the article!

As for using the cash basis, the reason this makes a difference is because the rules for how the company operates a vehicle are slightly different when you use the tradi­tional accrual method. To recap: Cash basis simply means you bill for things based on the date you spend/receive money, not the invoice date.

Don’t worry if your turnover is over £85,000. This just means you may need to provide additional details about your expenses. If your turnover exceeds £90,000 then VAT will need to be taken into account and £85,000 is also the current limit for FSCS financial protection.

General costs

The government (HMRC) has some very published ones easy to under­stand instruc­tions when it comes to business expenses for the self-employed. At the time of writing, this is the list of examples you can claim as allowable expenses:

• Office costsfor example stationery or telephone bills
• Traveling expensesfor example fuel, parking, train or bus tariffs
• Cost of clothingfor example uniforms
• Employee costsfor example salaries or costs for subcon­tractors
• Things you buy to resellfor example inven­tories or raw materials
• financial costsfor example insurance or bank fees
• Costs for your business premisesfor example heating, lighting, business rates
• adver­tising or marketingfor example website costs
• Training courses related to your company, for example refresher courses

Still confused? Let’s simplify this a bit.

Imagine working for the man

Imagine you’re still working in the corporate world for a large employer. For example, let’s say you work in web design and creative indus­tries. You don’t have to bring your own desk and chair to work, right? Your employer will almost certainly provide you with the following as a bare minimum:

• Some comfortable office space
• A desk
• A chair
• A computer
• A monitor, a keyboard, a mouse, etc.
• Maybe a laptop for remote work
• shelves
• Filing cabinets
• Stationery

And basically every­thing else you need for your work. As another example, let’s assume that you are employed as a mechanic at a large car dealership. You are expected to bring your own ramps to work! You receive:

• A workshop
• Break facil­ities, toilets, etc.
• Vehicle lifts
• Jack
• Extensive range of tools
• Compressors and air lines
• Branded overalls
• Consum­ables such as oil, coolant, etc.

You get the general idea. If it is a signif­icant part of the work that you would expect your employer to do, then it will almost certainly be classed as a reimbursable expense if you are self-employed.

What can’t you say?

In general, anything you consider a “perk” is not something you can claim for yourself. For example:

• Gym member­ships
• Private healthcare
• Lunch in the office
• Random evenings

Some of this may be able to be offset against company profits, but a benefit-in-kind arrangement for the employee will likely be required, so you will be no better off as a sole trader without employees.

Can I make claims for Christmas parties and social events?

In short, no. There are no subsidies for social events for the self-employed. However, if you have your own limited company you may be able to claim an annual exemption of £150 per head for Christmas parties etc. More Infor­mation here And also take a look at the trivial benefits below.

I’ve heard about a “significance bonus” — can I take advantage of it?

HMRC grants tax relief for de minimis benefits of £50 or less. This is a tricky one because, again, it’s really intended for your company’s employees. According to HMRC You do not have to pay tax on a benefit for your employee if all of the following condi­tions apply:

• it is not in the terms of the contract
• It will cost you £50 or less to deploy
• It is not cash or a cash voucher
• It is not a reward for their work or perfor­mance

At the time of writing I haven’t found anything that says this only applies to limited companies, but it does specif­i­cally say “employees” and sole propri­etors are not techni­cally employees. So… choose your battles.

Directors of closed limited liability companies are capped at a total of £300 de minimis benefits per year. This is in addition to the £150 exemption for annual social events mentioned above. It is not entirely clear on the HMRC website whether the £300 amount applies per director. After to this page on the HMRC website “The £300 limit applies per person and per employer” which doesn’t actually make any sense. The employer would be the company. Anyway, it’s appar­ently per director, but please double check with your accountant. HMRC provides a There are a number of examples here And here’s a screenshot in case they change their mind:

In theory, this results in an additional £450 per director of non-taxable benefits that can be claimed through the company. AND according to these instruc­tions This can poten­tially be expanded to:

• a spouse (or life partner)
• Children and their spouses (or life partners)
• Parents
• House staff, relatives and guests

This theoret­i­cally gives an almost unlimited list of exemp­tions worth £300 🤔 (maximum £50 per service). Can these costs also be offset against corpo­ration tax? I have no idea! Anyway, I digress, but it’s food for thought. It probably deserves a separate article.

Last updated on July 31, 2024 by Andy Mac