Saleh Ahmed

Allowable expenses to add to your Self Assessment tax return

Got a Self Assessment tax return to fill in but not sure what your business can claim back? Understanding what your allowable expenses is integral and can really help your business.

If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.

Allowable expenses do not include money taken from your business to pay for private purchases.

Below is a summary of the costs you can claim as allowable expenses (source HMRC)

These include:

  • Office costs, for example stationery or phone bills
  • Travel costs, for example fuel, parking, train or bus fares
  • Clothing expenses, for example uniforms
  • Staff costs, for example salaries or subcontractor costs
  • Things you buy to sell on, for example stock or raw materials
  • Financial costs, for example insurance or bank charges
  • Costs of your business premises, for example heating, lighting, business rates
  • Advertising or marketing, for example website costs
  • Training courses related to your business, for example refresher courses

Business versus Personal

There can be circumstances where self employed individuals incur costs for both business and personal reasons, you can only claim allowable expenses for the business costs.

Example – Your mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business.

You can claim for £70 of business expenses

Working from home

As companies and individuals around the world are forced to telecommute amid the COVID-19 pandemic, many people are grappling with the reality of working from home for extended periods of time.

You may be able to claim a proportion of your costs for things like:

  • Heating
  • Electricity
  • Council Tax
  • Mortgage interest or rent
  • Internet and telephone use

You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

Example – You have 4 rooms in your home, one of which you use only as an office.

Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).

If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).

For more information get in touch with one of our Accountants.

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Saleh Ahmed

Tax rules for expense reimbursements, advice for employers

There are a number of expenses employees may incur when doing their job. Broadly tax relief is available when expenses are incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’(HMRC).

The general rule is that a deduction from earnings is allowed for an amount if:

(a) the employee is obliged to incur and pay it as holder of the employment, and
(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment

Expenses which put an employee in a position to do their job (such as the cost of ordinary commuting) are not eligible for tax relief.

There are also provisions for relief for specific expenses, such as professional fees and subscriptions, and travel and subsistence.

When employers pay for or reimburse expenses that are eligible for tax relief, the payment is not taxed.

For example, if an employee pays for a train ticket to travel from their permanent office to another office for a business meeting, and their employer reimburses the cost of the train ticket, the reimbursement is not liable to income tax or National Insurance contributions.
Sometimes employers may provide employees with round sum cash allowances to cover potential expenses. For example, employees may receive a ‘travel allowance’ in case they need to travel for business trips, these cash allowances are taxed in the same way as other income.

How to reimburse an employee

When employers do not reimburse expenses that employees have incurred directly, this can be deducted from an employee’s taxable income.
• Through employees monthly pay
• Employees can claim directly to HMRC after the end of the tax year, claiming tax relief at their marginal tax rate

When paying or reimbursing qualifying expenses in full, employers do not need to apply to HMRC for agreement to do so, they need only satisfy themselves at the time of making the payment that the expense would be fully deductible (HMRC EIM30210).
This is a process that the employer can undertake in real time.

Commonly claimed expenses:

• business travel and associated expenses
• professional fees and subscriptions to professional bodies
• stationery for business use only
• telephone charges for business calls
• household expenses in the limited circumstances where an employees’ home is a workplace

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