Guide to Expenses for the Self-employed

If you are an accountant with clients who are self-employed, one of the first questions you will be asked is ‘what expenses can I claim to reduce my tax bill’. As accountants, it can be difficult to explain HMRC’s rules around which expenses are allowable and which are not. This blog highlights the rules around most expenses HMRC allows the self-employed to claim, thereby reducing the amount of tax paid on their business profit.

When preparing your self-employed client’s annual self-assessment return, you should also discuss the scope for claiming personal tax allowances to reduce the amount of income tax they pay, such as contributions into a personal pension scheme or charitable donations.

Allowable expenses

If your clients are self-employed they will usually operate as a sole trader. They will have registered with HMRC to submit a self-assessment tax return each year and will have a name for their business. These clients will pay income tax and national insurance on the profits made from their business. As accountants, you should advise your clients to keep records of all expenses they have incurred ‘wholly and exclusively’ for business purposes. These expenses reduce the amount of profit from self-employment to be included on the annual self-assessment tax return.

Most of the expenses a self-employed individual can claim are shown below. Your clients will need to keep records and receipts for all expenses claimed in the event HMRC decides to make enquiries into their tax return.

Travel costs

HMRC allows the following costs of travel to be claimed for business purposes:

• vehicle insurance
• repairs and servicing
• fuel
• parking
• hire charges
• vehicle licence fees
• breakdown cover
• train, bus, air and taxi fares
• hotel rooms and accommodation
• meals for overnight business trips.

HMRC does not allow the following costs to be claimed:

• non-business driving or travel costs
• fines
• travel between home and work.

Your client must keep receipts for all business related expenses and deduct these from the income they make from their business activities.

Simplified expenses for vehicle mileage

The self-employed can calculate car, van or motorcycle expenses using a flat rate (known as simplified expenses) for mileage traveled instead of the actual costs of buying and running a vehicle.

If your clients are traveling to a place of work which isn’t a permanent or geographical base, they can claim mileage at the following rates for a personal vehicle:

• Cars and goods vehicles first 10,000 miles at 45p per mile
• Cars and goods vehicles miles over the 10,000 threshold at 25p per mile
• Motorcycles at 24p per mile.

 Once a client uses the flat rates for a vehicle, they must continue to do so as long as they use that vehicle for business purposes. Clients cannot switch between claiming the costs of running a vehicle and the flat rate.

HMRC provides the following example of how to calculate the flat rate amount to be claimed for 11,000 business miles traveled in a personal car or goods van over a tax year.

Office, property and equipment costs

If your client operates from business premises, HMRC allows the costs of rent, business rates, utilities and insurance costs to be claimed.

Home working expenses

HMRC allows the self-employed to claim a flat rate based on the hours worked from home each month. The allowances are as follows.

Alternatively, HMRC will allow expenses to meet the additional costs of heating and lighting a work area at home. This calculation is more complex and is generally made based on the space used while working at home by allocating a proportion of the costs of:

• heating
• electricity
• Council Tax
• mortgage interest or rent
• internet and telephone use.

Clients will need to find a reasonable method of dividing these costs, for example by the number of rooms used for business or the amount of time spent working from home.

Stationery

HMRC allows the following expenses to be claimed if used wholly for business purposes:

• phone, mobile, fax and internet bills
• postage
• stationery
• printing
• printer ink and cartridges
• computer software a business uses for less than two years
• computer software if a business makes regular payments to renew a licence (even if it’s used for more than two years).

Telephone, mobile phone and internet

Telephone, mobile phone and internet expenses must be for business purposes. Ideally, clients should have a contract in the name of their business to evidence this. Otherwise, a list of business calls and internet usage will need to be provided based on a bill from the service provider, which can be difficult on fixed price contracts.

Other business expenses the self-employed can claim

The government allows the self-employed to claim a range of business related expenses which can be offset against profits, including:

• meals when working away from the office base
• uniforms
• financial costs for business banking and insurance
• business insurance
• legal costs and accountancy fees
• advertising and marketing
• training and professional subscription costs.

If fixed assets or equipment are purchased for a self-employed business (such as a computer or office furniture) a capital allowance can be claimed via the annual self-assessment.

How Initor Global can help your clients claim business related expenses

At Initor Global we have accountants and tax specialists who can meet your outsourcing needs. Our experts can prepare your clients sole trader accounts and self-assessment tax returns, and calculate any tax due.

If you want to find out more about our accountancy and tax services, or arrange a free consultation, please contact us on hello@initor-global.co.uk or visit our website at initor-global.co.uk.

You can also call us on 0203 519 2121.