HMRC has announced that you will be able to submit your Self Assessment tax return for the 2019/20 tax year up to midnight on 28 February 2021 without incurring the usual £100 fine for late filing. (This only applies to online filing). However, you still have to pay your tax by 31 January 2021 otherwise you will be charged interest at a rate of 2.7% on the amount payable.
If you haven’t yet submitted your return, you still have time to make some adjustments. Making the most of your “allowable expenses” can greatly help to minimise your tax bill. Also, having an understanding of them puts you in a better position to discuss your affairs with your accountant, if you have one.
We’ll look at some the things you can claim for below and we’ll assume that you use cash basis accounting, where you declare your income or expenditure when it goes in or out of your business bank account. (There will be some differences if you use other accounting methods such as standard or accrual basis accounting; check with an accountant if you’re not sure about this). You can also use simplified expenses and just use flat rates to work out tax relief on things like vehicles, working from home and living on your business premises. This would make your calculations quite a lot easier.
Expenses you can claim back
The Gov.uk website, has some useful information on different types of expenses you can claim if you’re self employed.
Many self-employed professionals run their businesses from their home. In this case, if you’re considering expenses such as heating, electricity, council tax and mortgage interest, you can only claim tax back on the proportion of those expenses that relate to the area that you use for your business. You’ll need to decide on a way to divide the costs; perhaps based on the number of rooms you use for business purposes, or maybe based on the number of hours you spend on operating your business from home.
Telephone and internet
Some people have a separate land line for their business and two mobiles to enable them to keep work calls distinct from personal ones. If you don’t keep them separate, rental, call charges and internet costs are all allowable expenses, but you will need to work out what proportion of your usage is for work and what proportion is for personal use and only claim tax back on the part that’s for business use. If you can’t show this, then you can’t claim any tax back.
Financial services and professional services
If you use an accountant or another professional such as a lawyer, surveyor, or web designer in connection with your business, you can claim tax back on their fees.
You can claim tax relief on business bank account overdraft and credit card charges or on interest on business loans.
Also, if you lease equipment for your business, your lease payments are completely allowable against your pre-tax profits.
If you need to travel for work, you’ll be able to claim certain travel expenses on your tax return. These include public transport, driving your own car and even travelling as a passenger in someone else’s car but it must apply only to travel which is undertaken for work purposes. This could include visiting clients, getting to and from a place of work where you have a longstanding arrangement, travel to training events or even to the bank to pay in your takings. If a journey combines business and pleasure and you can’t separate out the costs relating to each of these, then you can’t claim tax relief on any part of it.
If you use a vehicle as part of your business, you can claim tax relief on your running costs for road tax, insurance, MOT, breakdown cover, servicing, repairs, fuel and parking. But again, tax relief only applies to these if they are business rather than private expenses. And unfortunately there’s no tax relief on parking fines!
As a rule, you can’t claim for clothing that you would wear as part of an ordinary wardrobe. So, even if you’ve bought an everyday outfit to wear at work, you can’t claim for that. Or if you’re a personal trainer and you want to claim your gym clothes against your taxes, you need to ensure that you separate the cost of your personal sportswear from the clothing you teach in. If you have to buy a uniform that indicates what work you do, or if you need special protective clothing to do your job, you can claim for that. Also, if there is some embroidery or screen printing on your work outfit that showcases the name of your business, it becomes allowable.
Stock and equipment
You can claim tax back on your stock of products that you use in client treatments or which you retail. Items ranging from small tools and accessories to large items of equipment are also tax deductible. If you pay to repair, replace or upgrade an item, you can include the cost of this on your tax return as well.
You can claim tax relief on employee and staff salaries, national insurance contributions, bonuses, commission and agency fees.
Marketing and advertising
You can claim tax back on the costs of developing, hosting and maintaining a business website. Costs for online marketing and social media campaigns to promote your business also qualify, and also traditional print advertising in papers and magazines.
This is not an exhaustive list. Don’t forget things like chair fees if you rent a chair, business insurance, professional organisation memberships, subscriptions to trade magazines, cleaning and laundry, training courses, stationery, postage, printing including business cards, leaflets, price lists and printer cartridges etc.
Remember that as mentioned, this article assumes that you’re using the cash accounting method for your business; the rules for standard accounting can be slightly different.