The biggest benefit of being self-employed is that you don’t have to work for someone else! But what is the second biggest benefit? It is tax-deductible expenses. Why? Because it means you pay less tax!
How do HMRC define tax deductible expenses?
These are the expenses that can be set against your sales to lower the amount of tax you have to pay.
For business expenses to be tax-deductible, they must be “wholly and exclusively, but not necessarily, incurred for running your business”. So they can’t include expenses relating to your leisure time or family.
There are 6 main categories of tax-deductible expenses for self-employed businesses:
1. SALARIES & WAGES.
- You can deduct: Wages, National Insurance and costs relating to employees or costs for hiring a self-employed person to do some work for you.
- You can’t deduct. Your own wages or National Insurance.
- You can deduct: costs relating to business premises (heating, lighting, cleaning, water rates, rent, business rates), or costs relating to working from home (a proportion of home costs, including heating, lighting, cleaning, insurance, and general maintenance costs. You can also deduct mortgage interest if part of your home is used solely for business, but then you may be liable to Capital Gains Tax when you sell!).
- You can’t deduct: the proportion of costs that relate to personal use of the home, or initial costs of purchasing/improving the building.
3. EATING OUT
- You can deduct: Subsistence costs when you’re working away from home.
- You can’t deduct: Costs of entertaining actual or prospective clients! Or the cost of having dinner with your accountant!!
- You can deduct: Travel and accommodation on business trips and between different places of work (e.g. between your work place (even if that’s your home) and where you have to do the work)
- You can’t deduct: Travel between your home and usual work place
5. ADMINISTRATIVE COSTS
- You can deduct: Legal and consultation fees, accountancy fees, insurance costs, repairs.
- You can deduct: Phone and mobile expenses, postage, stationery, advertising and marketing, cost of raw materials, bank charges, interest on work loan, pension contributions (limited to 100% of your self-employment profits)
So there you have it. Tax-deductible expenses and pizza. If you like this post please share &/or like it on Facebook or Twitter.
P.S. Please feel free to post any questions that you have on tax-deductible expenses and your business. I will get back to you with an answer