When completing a tax return, its important record your expenses, as you may be able to deduct them from your turnover to work out your taxable profit.
HMRC has rules around what you can and can’t include, which is why they are defined as ‘allowable expenses’, HMRC strictly want you to only deduct expenses related to your business.
Here’s an example:
Your business earns £25,000 in a tax year, but your allowable expenses add up to £5,000. You only need to pay tax on £20,000, which is your taxable profit.
Here are some of the costs that usually count as business expenses:
You can include business stationery, printing costs (including printer ink), and postage. You can also include business equipment like computers and printers and computer software.
You can claim expenses for rent, maintenance and repair, utility bills, property insurance and security. You can’t claim expenses for buying or building your business premises.
If you run your business from home, you can include part of your home utility bills, but you need to work out the proportion of your home that’s used for business, and what proportion of the month it’s being used for business purposes.
You can include business-related car or van costs, including vehicle insurance, fuel, hire charges, repairs, servicing and breakdown cover. This can be difficult to calculate, so you can use simplified vehicle expenses, which is a flat rate provided by the government.
You can also include business travel by train, bus, plane or taxi, and hotel rooms and meals during overnight business trips.
Stock and materials
You can include the cost of your stock, your raw materials, and the direct costs that arise from producing your goods.
Legal and financial costs
If you need to hire a professional like an accountant, a solicitor, a surveyor or an architect for business reasons, you can include the cost in your calculation.
You can also include bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest and leasing payments. Note that if you’re using cash basis accounting, you can only claim up to £500 in interest and bank charges.
You can include the cost of business insurance, for example public liability insurance and professional indemnity insurance. For more information on insurances contact the Sidekick team for support.
The cost of marketing including newspaper advertising, directory listings, mailshots, free samples and website costs can be claimed.
You can include the cost of uniform, necessary protective clothing, or costumes for actors or entertainers, but you can’t include the cost of everyday clothing that you wear to work.
Employee and staff salaries count as allowable expenses, as do bonuses, pension contributions, benefits, agency fees and employer National Insurance contributions.
You can include the cost of membership to trade bodies or professional membership organisations if they’re relevant to your business, and the cost of subscriptions to trade or professional journals.
Calculating your business expenses for your tax return
When you complete your tax return, you may get the option to give a single figure for your allowable expenses or to give a detailed breakdown. If you choose to enter a single figure, you still need to work out all your expenses accurately and keep a record of your workings in case HMRC queries your figures.
Tax can be complicated, and you can face fines if you make a mistake on your tax return, the Sidekick team are able to provide you with a full service which includes completing this on your behalf and an online app where you will be able to keep a record of all expenses as above. For more information call 0808 164 3000. Or visit our website www.yoursidekick.co.uk and chat live to a member of our team.