As a self-employed individual, there are many business expenses you may not realise you can claim to reduce your taxes. Most people know about home office expenses and travel costs, but there are many more allowable self employed expenses that could make a real difference to your tax bill. In this blog, we’ll highlight some of the lesser-known costs you can include – like legal fees and marketing spend – so you can keep track of them throughout the year.
Staying on top of your expenses helps to minimise your tax bills at year-end, leaving more money in your pocket.
Common Self Employed Expenses You Can Claim
Below is a useful list of typical self employed business expenses. These are costs you can deduct from your business profits before calculating your tax – which means you’ll only pay tax on your actual earnings.
Tax Allowance for Uniforms & Tools
If you need to buy uniforms, tools or equipment solely for business use, you can include these as a business expense. The tools and equipment should not be used privately and the uniform must identify you as having a certain occupation such as a beautician or electrician.
Many industries have agreed on tool allowance amounts with HMRC. For example, a mechanic can claim a tool allowance of £120 per tax year without needing to keep receipts. It’s best to check what your allowance is before submitting your claim.
Popular trades likely to claim back on their tools include electricians, joiners, chefs, hairdressers and mechanics.
Financial & Legal Costs
Don’t forget to include financial and legal costs on your self-assessment form, as many services are eligible for tax deductions. These can include fees for business accountants, solicitors, surveyors and architects. You can also claim back financial costs like hire purchase interest, interest on bank and business loans, overdrafts, monthly bank account charges, credit card charges and professional indemnity insurance premiums.
Unpaid Invoices & Bad Debt
If you’ve done all you can to recover a payment and still haven’t been paid, you may be able to write off bad debts or unpaid invoices. You’ll need to show that you’ve taken reasonable steps to recover the amount – such as sending reminders of engaging a collection agency. The debt must be specific and not just a general allowance for possible non-payments. Only the portion of the debt that is genuinely uncollectible can be claimed as a business expense.
If the debt is subsequently recovered, you will need to declare this income on a later return.
Tax Relief on Charitable Donations
Donations made to registered charities can qualify for tax relief. For UK taxpayers, donations made under Gift Aid allow the charity to claim an extra 25p for every £1 donated. If you’re a higher-rate taxpayer, you can also claim back the difference between the basic rate and the higher rate of tax. As long as the business doesn’t directly benefit from the donation, it can be deducted from your taxable profits.
Tax on Business Phone Lines
If you have a phone line or mobile that’s used exclusively for business purposes, the full cost can be claimed as a business expense. If the phone is used for both personal and business use, only the business portion can be claimed. It’s a good idea to keep clear records of how the phone is used and to allocate costs accordingly.
If you employ staff, you can also provide one company mobile phone per employee and claim that as a business expense. Any more than one phone per employee would be taxed on the employee as a benefit in kind.
Plant & Machinery
This includes the cost of buying or maintaining equipment and machinery used to run your business – from laptops and vehicles to heavy machinery and tools. The Annual Investment Allowance (AIA) allows you to deduct the full value of qualifying plant and machinery up to a certain limit. For anything that exceeds the AIA, you can still deduct a percentage of the cost each year through capital allowances.
Employee Training Payments
If you pay for employee training to improve their performance in their current role, you can claim it as a self-employed business expense. This includes course fees, materials and related travel costs. The training must be relevant to the role and benefit the business.
Courses that are for personal development or unrelated qualifications aren’t usually eligible.
Marketing Costs
Promoting your business comes with many claimable costs. You can include everything from paid ads and promotional events to printing leaflets and working with an agency. Online advertising, social media campaigns, website development, and even branded stationery can all be classed as marketing expenses self employed individuals can claim.
Tax Relief on Subscriptions
Subscriptions to professional bodies, trade magazines or industry journals can be claimed if they relate directly to your business. The cost must contribute to the operation or professional development of you or your team. HMRC may ask you to justify the relevance of any subscriptions, so it’s wise to keep receipts and membership information to hand.
The Annual Staff Christmas Party
The cost of your staff Christmas party (or even summer BBQ) can be claimed as a business expense if the event is open to all employees and costs £150 or less per person. You can only claim one event per year, so choose wisely. It’s a small but worthwhile way to reward your team while also reducing your tax liability.
Trivial Benefits
You can claim tax relief on ‘trivial benefits’ without there being any tax implications on the employee, provided the cost of the benefit is £50 (including VAT) or less, is not cash or a voucher that can be exchanged for cash and is non contractual, and not in recognition of services being performed. Examples of trivial benefits might be a birthday meal, a Christmas present or a bunch of flowers. You should set up a separate code on your accounts record to keep track of all trivial benefits.
How to Track and Record Your Self Employed Expenses
To properly claim your expenses, you need to keep clear and accurate records. Receipts, invoices, cashbooks and bank statements all count as proof of your spending. Categorising your costs from the start will make things easier come year-end, especially when you’re pulling everything together for your self-assessment.
Remember, if you’re not VAT registered, you can claim VAT incurred as a cost too.
As part of Making Tax Digital (MTD), we encourage all of our clients to use accounting software or expense-tracking apps to store their records safely online. Not only does this keep you compliant, it also means you’re less likely to forget about those small (but valuable) self employed expenses that can really add up.
If you need a professional opinion on your self-assessment or you’re unsure about what you can and can’t claim, don’t hesitate to get in touch with 360, Chartered Accountants.
