When you are self-employed, you are going to have to deal with your own tax returns. Often, this is something that sole traders hate, as it can be very time-consuming and complicated. You always have to ensure that you get all of the numbers right to avoid penalties from HMRC.
If you are new to completing your tax returns, you might not be aware that you can claim business expenses. This means that the expense is going to be deducted from the profits you make, which can lower the tax you pay, as well as National Insurance contributions. Indeed, you want to ensure that you claim all of your business expenses since this should not have to come out of your own pocket.
But, what is classed as an allowable business expense? Well, there are many things that can fall under this category. In particular, a lot of self-employed people want to know if hiring an accountant can be listed as a business expense when completing tax returns. So, let’s take a closer look.
What is an Allowable Business Expense?
First of all, you need to understand what is meant by an allowable business expense. This means that you have paid out money for something to help your business. When it is ‘allowable’, this means that HMRC has said that this expense is allowed to be deducted from your trading income. In particular, this has to be an expense that is ‘wholly and exclusively’ for the running of your business. In other words, you spent money on something in order to benefit your self-employment.
It can be difficult to know what is an allowable business expense. This is one of the reasons why you might choose to hire professionals to help with your accountancy needs. With their training and expertise, they are going to be able to confirm whether you are going to be able to claim for an expense. But, in the meantime, we are going to give you some examples of common allowable business expenses.
Let’s start by considering any materials you purchase for your business. For example, this could be stationery, office chairs or even computer software. You are going to be able to claim these costs in expenses, as long as they are used solely for your business. Other expenses you can claim include:
- Rent
- Property insurance
- Repairs of business equipment
- Business van
- Business trip hotels
Things are going to become a little more complicated if you are working from home and want to claim some business expenses. For example, it is possible to claim your utility bills and broadband prices. You can even claim a new laptop. But, if they are not used completely for business, you are going to have to use special formulas to work out how much you can claim for them. This is where an accountant can help.
What Are Some Examples of Disallowable Business Expenses?
Often, people that are new to self-employment get confused and find it difficult to know whether something is an allowable or disallowable business expense. Indeed, there are some things that you are going to have to pay for yourself and you will not be able to claim on your tax returns. So, here are some examples of common business expenses that are going to be disallowable for tax purposes. Note that some of them you might feel aggrieved about. But, HMRC will not accept them.
Traveling from Home to an Office
Do you travel to an office most days for your work? Paying out for petrol or having to book train tickets can seem like it is a business expense. After all, you are traveling for the purpose of work. However, if you are traveling from your home, this is not going to be an allowable business expense.
Parking Fines or Other Penalties
Say that you have received a parking fine while you are working or another type of penalty. You may think that you can offset this when it comes to your tax returns. Unfortunately, this is not going to be allowed. Even if you receive a penalty as a consequence of the work you are doing, this is not something you can claim.
Everyday Clothing
There are some types of clothing that are going to be an allowable business expense. For example, say you need protective clothing to carry out your job or a uniform as part of your business. You will be able to claim for this. However, everyday clothing that you simply wear when you are working cannot be claimed.