What are the most effective tax allowable expenses in the UK?
If you are self-employed or run a limited company in the UK, you may be wondering what expenses you can claim to reduce your tax bill. Tax allowable expenses are those that are “wholly and exclusively” for the purpose of your trade or profession, according to HMRC. They include things like office costs, travel costs, clothing expenses, staff costs, financial costs, marketing costs, and training courses. In this blog post, we will look at some of the most effective tax allowable expenses in the UK and how to claim them.
Office costs
Office costs are expenses related to running your business from an office, whether it is at home or elsewhere. They include things like stationery, phone bills, internet, heating, lighting, business rates, rent, and mortgage interest. You can claim the full amount of these expenses if you use them only for your business. If you use them for both business and personal purposes, you can claim a proportion based on a reasonable method of dividing your costs. For example, if you have four rooms in your home and one of them is used only as an office, you can claim 25% of your home expenses as office costs.
Travel costs
Travel costs are expenses related to travelling for your business, such as fuel, parking, train or bus fares, tolls, and congestion charges. You can claim the full amount of these expenses if you use your vehicle or public transport only for your business. If you use them for both business and personal purposes, you can claim a proportion based on a reasonable method of dividing your costs. For example, if you use your car for 10,000 miles a year and 6,000 of them are for business purposes, you can claim 60% of your car expenses as travel costs. Alternatively, you can use the simplified mileage rates published by HMRC to calculate your travel costs based on the number of miles you drive for business purposes.
Clothing expenses
Clothing expenses are expenses related to buying and maintaining clothing that you wear for your business. You can claim the full amount of these expenses if the clothing is a uniform or protective clothing that you need to do your job. For example, if you are a nurse or a chef, you can claim the cost of buying and cleaning your uniform. You cannot claim clothing expenses if the clothing is not a uniform or protective clothing and can be worn for everyday use. For example, if you are a lawyer or an accountant, you cannot claim the cost of buying and wearing a suit.
Staff costs
Staff costs are expenses related to hiring and paying employees or subcontractors for your business. They include things like salaries, wages, bonuses, pensions, National Insurance contributions, agency fees, and employer’s liability insurance. You can claim the full amount of these expenses as long as they are reasonable and incurred for the benefit of your business.
Financial costs
Financial costs are expenses related to managing the finances of your business. They include things like bank charges, interest on loans and overdrafts,
insurance premiums (except life insurance), legal fees (except those related to buying property or shares), accountancy fees (except those related to personal tax returns), and bad debts (if they are written off as irrecoverable). You can claim the full amount of these expenses as long as they are incurred for the benefit of your business.
Marketing costs
Marketing costs are expenses related to promoting and advertising your business. They include things like website costs (except those related to buying domain names), social media costs (except those related to personal use), printing costs (except those related to personal use), trade publications (except those related to personal use), entertainment costs (only up to £150 per person per year), and subscriptions (only if they are relevant to your trade or profession). You can claim the full amount of these expenses as long as they are incurred for the benefit of your business.
Training courses
Training courses are expenses related to improving your skills and knowledge for your trade or profession. They include things like course fees (except those related to personal development), travel and accommodation costs (only if they are necessary and reasonable), and materials and equipment costs (only if they are necessary and reasonable). You can claim the full amount of these expenses as long as they are relevant to your current trade or profession. You cannot claim training courses if they are related to starting a new trade or profession or changing the nature of your existing trade or profession.
How to claim tax allowable expenses
The way you claim tax allowable expenses depends on whether you are self-employed or run a limited company, and whether you use the cash basis or the traditional accounting method. If you are self-employed and use the cash basis, you can deduct your allowable expenses from your income in the tax year that you paid them. If you are self-employed and use the traditional accounting method, you can deduct your allowable expenses from your income in the tax year that they relate to. If you run a limited company, you can deduct your allowable expenses from your profits before tax in the accounting period that they relate to.
To claim tax allowable expenses, you need to keep records of what you have spent and why, such as receipts, invoices, bank statements, and mileage logs. You also need to fill in a self-assessment tax return or a corporation tax return and report your income and expenses in the relevant sections. You can claim tax relief for up to four years after the end of the tax year or accounting period that you spent the money .
Conclusion
Tax allowable expenses are a great way to reduce your tax bill and increase your profits. However, you need to make sure that you only claim expenses that are “wholly and exclusively” for the purpose of your trade or profession, and that you have evidence to support your claims. By following the guidelines in this blog post, you can make the most of your tax allowable expenses in the UK.