What are allowable expenses?

It’s that time of year again when a dreaded deadline is looming. Self-employment tax returns need to be submitted by the end of the month.  

If you’re a seasoned business owner, you will know all about allowable expenses but if you’re new to this, there’s a few things you should know.  

Your tax bill is based on your taxable profits for the year. What you need to know is that not everything should be considered a profit.  

For example, businesses have running costs and some of those costs need to come out of your overall profit margins. So, your yearly profit may actually be significantly less than you first thought.  

Whilst that sounds quite negative, it’s not when it comes to the bill. Let’s say you have £10,000 profits but you’ve spent £3000 this year on running costs, your actual profit is only £7000 therefore, your bill will be calculated on the lower amount.  

So, what exactly are allowable expenses? 

Generally, they will fall under the following categories. 

  • Travel 
  • Stock 
  • Marketing  
  • Legal and professional 
  • Office

You can’t claim for anything that has been used for personal use but there are many things that you can deduct from your profits if they were used solely for business use.  

Let’s break it down. 

Travel  

You can claim for; 

  • vehicle insurance
  • repairs and servicing 
  • fuel 
  • parking 
  • hire charges 
  • vehicle licence fees
  • breakdown cover 
  • train, bus, air and taxi fares 
  • hotel rooms 
  • meals on overnight business trips 

What you can’t claim for is any non-business-related trips, any fines and any travel between home and work.  

Stock 

You can claim for; 

  • stock held 
  • raw materials 
  • costs incurred from producing goods 

Marketing 

You can claim for; 

  • subscriptions (for example Chamber membership, trade or professional journals 
  • advertising in newspapers 
  • website or outsourced marketing costs 

What you can’t claim for is entertaining clients or events hospitality (not that that’s a problem for any of us right now!) 

Legal & Professional

You can claim for; 

  • hiring of accountants, solicitors, surveyors and architects for business reasons 
  • professional indemnity insurance premiums 

What you can’t claim for is legal costs for buying property or machinery or fines for breaking the law 

Office 

You can claim for; 

  • stationary 
  • rent, rates, power & insurance 
  • phone
  • equipment hire 
  • printing 
  • ink & cartridges 
  • computer software

What you can’t claim for is any use of property or equipment that is not for business purposes.  

These are just a few examples of the types of allowable expenses you can claim. For a more detailed list, visit the government website or get in touch with one of our advisors and we will be happy to help.  

Ultimately, you have already incurred these costs and paid tax on them, so you don’t want to double up. Before submitting your tax return, go back over it and make sure these expenses haven’t been included otherwise you could find yourself in receipt of an unnecessarily high tax bill.  

If you need any help at all, just ASBK.  

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