All businesses have some sort of costs, no matter their size or scale. The good news is that you can offset the burden of these purchases and outgoings against your tax bill, helping to reduce what you owe.
You can only deduct costs if they can be classed as an allowable expense, so lots of business owners tend to miss out because they’re not sure what they’re allowed to claim for. In this article we’ll explore what allowable expenses you can claim tax relief on, and how this impacts the amount of tax you pay.
What kind of things can I claim as a business expense?
The golden rule any accountant or online guide will tell you is that you can only claim something as an expense if it wholly and exclusively relates to your business.
If you spend money on something but some of the time you use it for personal (non-business) reasons, then you’ll need to work out the portion of the cost which relates to the business, and make sure you only claim that. We’ll go over two of the most common examples, working from hom and travel expenses, below! HMRC also have a more extensive list of allowable expenses available online.
It’s important you know what you can claim for and how to calculate your expenses. Nobody wants to miss out on tax relief they might be eligible for, or to risk HMRC finding inaccuracies in your claim! Particularly for anything on the more unusual side of an expenses claim.
Allowable expenses relating to where you work from
You can usually claim most of the costs which relate to your business premises, such as a workspace you rent, or even the part of your home you use for business. These types of costs might include:
- Heating
- Lighting
- Water
- Rent payments
- Business rates
- Cleaning
- Property maintenance and repair
What about if I work from home?
Working out of a space which is separate to your home makes calculating this part of your expenses a bit more straightforward. The ‘wholly and exclusively’ business expenses rule gets a bit more complicated when you work from home.
You can still claim for your business expenses, but you’ll need to make sure you only claim the proportion which relates to your business activities.
Limited companies are only allowed to use the ‘proportional’ actual costs method, but sole traders have two options:
- Simplified expenses (otherwise known as flat rate expenses)
- The proportional costs method
Simplified (flat rate) expenses if you work from home
Simplified expenses are great for those who want a simpler way to work out their expense claims. You can’t use them for everything, but you can use them for things like using part of your home for work or travel.
To be eligible to use this method, you’ll need to be a sole trader, or in a partnership which doesn’t have any companies as a partner. You’ll also need to work from home for 25 hours or more per month. You simply claim your expenses through a flat rate outlined by HMRC, depending on how many hours you work from home each month.
- 25-50 hours: Claim £10 per month
- 51-100 hours: £18 per month
- 101+ hours: £26 per month
Calculate the actual cost of running your business from home
Using the ‘costs’ method means you’ll need to calculate the portion of your expenses which relate to business rather than personal use.
For example, if you have a house with four rooms and one of those rooms is your home office, a quarter of your property is used for business activity. So, if your electricity bill for the month comes to £200, you can claim a quarter (£50) of that as an allowable expense.
Things can become more complicated if there are multiple people using the same space for work. That’s why we always recommend seeking the help of a qualified tax accountant who will be able to clarify what you can and can’t claim!
Travel and accommodation costs
With regards to travel, you are allowed to claim:
- Travel and accommodation related to business
- Vehicle running costs including fuel, tax, insurance, maintenance, and servicing
You aren’t allowed to claim:
- Travel between your home and your regular workplace (for example, if you have an office or workshop separate to your home, you can’t claim the cost of travel to it as part of your regular commute)
- Initial vehicle purchases
- Meals outside of reasonable costs
For those self-employed with a mobile business, reasonable expense claims for journeys to and from a temporary place of work are permitted. So, for somebody who has to travel to a client’s premises, such as a plumber or a hairdresser, they are able to claim the cost of this journey as an allowable expense.
There’s a limit on how long you can claim travel expenses for if you’re going to the same place
Remember how we said you can’t claim the cost of your usual commute, but you can claim your expenses for legitimate business travel? This is where the 24 month rule comes in.
The rule means you can claim the travel costs as long as the intention is that it will be for no more than 24-months. So, if you start out on a 3-year contract, the intention is that this will be longer than the allowable 24-month period, and you won’t be able to claim.
Working out travel costs
Just like working from home, you might be able to choose between using either the simplified flat-rate mileage method to claim your travel expenses, or working out the actual costs.
The flat rate (45p per mile for cars, for the first 10,000 miles, and then 25p per mile after that) is easier, and means you’ll only need to keep mileage logs of each journey.
Using the actual costs method required much more detailed tracking of things like fuel, insurance, and repairs, but it can be worth the effort if the amount you can claim for is considerably more than what you could claim using flat rates.
Managing your allowable expenses for Self Assessment can be complicated, especially if you’re not familiar with the dos and don’ts. Check out our accounting support hub for more help, or to ask a tax question!
