Claiming expenses when running a small business from home can be complex. As such, we are going to help you get to grips with what you can claim for and provide some handy tips.
When you are self-employed, your business will have various running costs that you can deduct to work out your taxable profit. There are lots of expenses in a business that you can claim for. If you use something for both business and private purposes, you need to pro-rata the cost to the business. For example, a phone bill may be £100, if £60 was private calls you can then only claim £40 against the business. As with all expenses, this will need to be evidenced.
Claiming expenses on premises
If you run your small business from home, you will be able to claim a proportion of your costs for heating, electricity, council tax, phone usage. However, you will need to find a reasonable and fair method of establishing your costs, i.e. by the number of rooms you use for the business and the amount of time you spend working from home.
It may be easier the use the flat rate scheme based purely on the hours you are working from home each month. The flat rate does not include telephone or internet bills, so you can claim these by working out the actual costs.
If you have premises you can claim for the rent, utilities, business and water rates, property insurance, maintenance and security.
Learn more about the regulations around running your business from home here.
Travel is one of those expenses that you cannot really avoid. The purchase cost of the vehicle is a capital item, so is dealt with through ‘capital allowances’. If you have bought a van, it will be eligible for the annual investment allowance (AIA), so potentially the entire cost could be offset in the first year. Cars, however, are not eligible for the AIA. The rate at which you claim the allowances varies depending on when it was purchased and the emissions rate. Seek advice to ensure you claim the correct amount.
When the vehicle is in the business, you can claim vehicle insurance, repairs and servicing, fuel, parking, licence fees, breakdown cover, etc. However, remember that you will need to work out any private mileage and claim the appropriate percentage only. You may decide a more straightforward way is to claim £0.45/mile instead if your mileage is in excess of 10,000. This will reduce to £0.25/mile thereafter.
You can also claim train, air and taxi fares, as well as hotel rooms and meals on overnight business trips.
You cannot claim non-business driving and travel costs, any fines you incur or travel between home and your usual place of work i.e. office, shop.
You can claim for any uniform you may wear i.e. showing the business logo, protective clothing or if you are in the entertainment industry, any costumes. Claiming expenses when working from home is not likely to include your clothing as you will not require any specialist items. You cannot claim for everyday clothing.
Staff costs can also be tax deductible, so you can claim for salaries, bonuses, pensions, sub-contractors and employers national insurance. However, you cannot claim for carers, domestic help, nursery fees etc
Legal and finance
Accounts, solicitors and surveyors are all allowable business expenses when utilised for business purposes. However, fines are not allowable.
Bank charges, overdraft and credit card charges, along with interest on loans are allowable, however, you cannot claim for repayment of loans, overdrafts or finance arrangements.
You can claim for any insurance policy for your business, for example public liability insurance.
Marketing, entertainment and subscriptions
Advertising, mailshots, samples and cost of website can all be claimed along with any subscriptions to trade appropriate journals, trade membership or professional organisations and networking groups.
You cannot claim for entertaining clients, suppliers or event hospitality. Neither can you claim for payments to political parties, gym membership or donations to charity. However, sponsorship payments may be permitted.
It is not possible to claim the cost of a training or course fee for tax purposes if the object is to learn a new skill or qualification. To give an example of a disallowed expense: Mary is a self-employed personal trainer, she has always had a desire to study accountancy and attends a college course. The cost is not allowed, as this is a new qualification. Incidental costs such as travel, stationery and subsistence are not allowed either.
On-going training and development (once a knowledge, skill or qualification is acquired), the cost of up-dating or continuing development are allowed for tax purposes.
When claiming expenses, you are obliged to keep records of all your business income and expenditure along with records of your personal income. If you are in a partnership and you are the nominated partner, then you need to keep all records for the partnership. Records must be kept for six years and be available upon request from HMRC