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Claiming expenses if you’re self-employed: the dos and don’ts

Whether you’ve been self-employed for a long time or are just starting out with your own company, staying on top of your finances is vital to ensuring the success of your business.

Although it might take some time, working out your allowable business expenses can be extremely worthwhile as you can deduct these from your turnover when working out your taxable profit.

We’ve put together some handy hints to help you get to grips with what you can and can’t do when claiming expenses if you’re self-employed.

Think carefully about what you can claim – it’s probably more than you think

The first step to claiming expenses if you’re self-employed is to take some time out to think about what you are entitled to – in other words, your ‘allowable expenses’.

In a broad sense, all of the costs you incur running your business can be deducted from your turnover to work out your taxable profit – HMRC have thorough lists and exemptions on their website which are worth taking a look at.

Things you can class as allowable expenses include office costs like stationery and phone bills, clothing expenses if you wear a uniform or have to buy special clothing for your job and costs you might incur while travelling.

Other things such as money you spend on advertising the business, the cost of a website and fees you pay for most repairs and maintenance to the premises are also included, as are professional fees such as hiring accountants and solicitors for business reasons.

If you’re not sure about whether something can be classed as an allowable expense, you can contact the Government’s self-assessment helpline to ask for more specific advice – it’s always better to be safe than sorry rather than deducting too much.


Make the effort to do your sums

A lot of people overlook the fact that if something is used for both personal and business means, it can still be classed as an allowable expense – as long as you are prepared to do a few sums!

For example, if you have a sole phone for work and personal calls, all you need to do is go through a few months of old bills and work out how much is spent on each.  

You don’t necessarily need to go through each bill with a fine tooth comb, but if you can work out on average the percentage of each being spent on personal and business then you can use that calculation going forward.

Just remember to keep your workings out at the end of each month!

Similarly, if you work from home you can claim some costs you might have incurred as a result.

For example, you may be able to claim a proportion of costs for things like heating, electricity and broadband, as well as the interest you pay on your mortgage.

You will need to find an acceptable method of dividing the costs such as the proportion of the home the office takes up and how much time you spend working there.

It might mean you spending a few hours with a calculator or doing some long-division, but the savings over time could certainly be worth your while.


Take advantage of the Government’s flat rates

It’s true that claiming expenses if you’re self-employed can take some time and effort, but if you simply don’t have the energy there is also the option of using HMRCs ‘simplified expenses’.

This is a flat rate provided by the Government based on the hours you work from home – but does only apply if you work from home for 25 hours or more a month.

There are also flat rates for mileage which might be worth taking a look at.

Handily, the Government website also includes an expenses checker so you can compare what you can claim using the flat rates with what you can claim if you did the sums yourself – and see whether getting your calculator out is worth it.


Be a hoarder

One of the key things to remember when claiming expenses if you’re self-employed is that you might be asked to provide evidence to HMRC.

Although you don’t need to send proof of expenses when you initially submit your tax return, the Government is entitled to ask for your records, so keeping all receipts, however small, is vital.

Make sure you have a robust filing system so you can find things quickly and easily if asked, and it’s also important to retain any workings out you have done over the past few years.

Keep on top of things on a monthly basis and check you have everything you will need at the end of the year – having to find a missing invoice after one month might be tricky but trying to find it after 12 could be almost impossible!


Don’t miss any deadlines

Being self-employed means you are responsible for your own finances and ensuring you are prepared for the self-assessment date is vital to claiming expenses if you’re self-employed.

Remembering your forms are due back a couple of days before the deadline is not going to give you enough time to work everything out accurately and could mean you either miss out on what you are owed or end up paying a penalty later in the year.

This year’s self-assessment deadline for online tax returns is midnight on 31 January 2018 (earlier for paper returns), so it makes sense to get it done before Christmas to give yourself a stress-free new year.


Claiming expenses if you’re self-employed: a recap

Being organised throughout the financial year and not leaving things until the last minute is the most important factor for anyone working out their allowable expenses.

Erring on the side of caution and keeping anything you think might be useful is also crucial – better to be safe than sorry and end up having to pay tax or penalties further down the line.

If you have any questions about claiming expenses as a self-employed individual, why not get in touch today?

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