Tax-deductible expenses

If you are self-employed, you are running a micro-business. Businesses incur costs: you pay for things which are vital to the running of that business. In the case of freelancers, these can be different to a typical business. 

Therefore, the government allows for certain costs which can be deducted from your tax contribution. These must be important to the running of your business and preferably only for use in your working life. 

There have been calls for the government to review these costs so that they take in a broader range of expenditures. The self-employed live quite different working lives compared with employees. It can be harder to access childcare or even secure a mortgage. There is a feeling that the government could do more to support these needs and reducing the tax burden of these costs could really help. 

However, you are already entitled to a broad range of expenses covering  everything from bills and travel to advertising. 

When you are calculating your tax return, there a range of items and costs which you can offset against your taxable profits. These can be done through working out the tax on the full or partial costs of using a particular item or service. Then, work out how much you actually use and calculate and file for tax relief

Status - Sole Traders

If you are a sole trader, you can claim on the costs of something you use both for private and business reasons. The best example is a mobile phone. If you have a phone bill of £50 per month and use it for work purposes in the daytime on average five days a week but use it personally the rest of the time you can claim back a proportion. Realistically in this example you could claim 2/5 of the overall cost for business expenses – £20.

Here are some other areas you could be saving money on:

Staffing

If you subcontract work out, pay bonuses or have a pension, tax-deductible expenses (TDE) apply.

Clothing

Protective clothing, uniforms and even costumes if you are a self-employed actor count for relief. Just try not to claim on your wedding dress or a new pair of trainers.

Travel

This is especially importat for a range of self-employed people across the UK. You can claim on travel costs, parking, insurance cover and repairs. You can claim on your petrol and even on your hotel and food if you trip includes an overnight stay. However, you cannot claim for standard travel to work, for instance your train fare to a workplace where you are self-employed working for a company.

Offices and property

You can claim on stationery (including postage and printing) and computer software. In the case of software, this has to be anything which you use for under two years. However, if you renew a licence yearly, such as a computer security package, you can claim relief on this when you renew.

Working from home

If you are working from home, you can claim for tax relief on a proportion of the costs for running the home. For instance, council tax, heating and especially your internet or electricity costs. If you have an office in your home, you could for instance deduct the tax from the proportion of the property that the house occupies. 

There is also a system of ‘simplified expenses’ which can be applied as a flat rate to vehicle use or working-from-home expenses. This process is simpler and takes up less time. The government has a simplified expenses portal on its website.

Claiming on finance

This is very important. You have the ability to claim on bank charges, including on loans and overdraft charges. If you are only using cash-basis accounting, there is a limit of £500.
You can also claim on debts, if for instance they relate to fixed assets, such as leasing of machinery or land.

Other

If you resell stock or something else relating to your business, you can claim the tax back on this too.Website costs, organised mailshots, advertising and even membership fees to professional organisations relevant to the freelancer’s work, can also qualify for relief.

Status - Limited Companies

There is a different rule if you run a limited company. Business costs can be deducted from your profits prior to paying tax. These must then be reported as a company benefit.
If this is the case it is best to seek the advice from your trade association or a professional adviser to see exactly how this applies to you Remember, keeping your records and falling in line with your articles of association will be paramount in any decisions you take.

Be sensible

You are self-employed, and therefore you’re used to dealing with red tape, and are aware of the importance of your tax return. In the case of TDE, you need to be extra diligent. Keep your receipts safe, get together a simple, but organised record-keeping system and take note of everything you do. 

You do not have to send in proof of what you have spent to HMRC with your tax return. However, you may be asked for them afterwards. You have a much stronger case for getting some tax relief if you can prove your expenditure. It is good practice to keep detailed accounts and receipts of any business purchases anyway. General practice is to keep them for about eight years. 

During harder times, or when you are first starting out, these processes can be burdensome. However, tax relief can make a huge difference to the profitability of your business. Therefore, it is important you find out in case you’re missing out.

 

Meet the author

Ryan Barnett