Claiming expenses while self-employed

MATT WALTON from our accounts department says that self-employed people don't always claim what's owed to them in tax relief. Here are some handy pointers to help you get the process right.

When operating as a self-employed individual, it can be easy to miss expenses you have incurred that may be eligible for tax relief. It can be especially difficult to know how to treat each expense. Sifting through your bills and determining which are business related and which are not can be time consuming. It can be hard to work out which costs are allowable as expenses or assets.

The treatment of expenses and assets is different and relies on the basis of accounting you use. In short, the two bases you can use are:

• The accruals basis (traditional accounting)
• Cash accounting

Expenses

Items you purchase that you use for less than two years, attract tax relief in the period in which you purchase them. This is regardless of the accounting basis you use.

For example, printer ink: the tax relief from this purchase is achieved immediately.

Assets

Items you purchase which you will use for more than two years attract tax relief depending on the accounting basis you use. This could be, for example, a printer.

Cash accounting – tax relief is achieved immediately, as if the asset purchase were a consumable. The printer would achieve tax relief immediately, in the same way the ink did.

Traditional accounting – The purchase is capitalised; capital allowances act as a tax relief and charge the cost of the asset over its useful life. Currently, schemes such as AIA allow the cost of most assets to be relieved immediately. The printer would be capitalised, and capital allowances deducted when determining taxable profits.

When analysing your business expenses, some things you should consider are:

• Office supplies: paper; printer ink and postage; and phone and internet bills. (Always consider how much personal use you get from your phone bills).
• Subscriptions and insurance: if you require specialist insurance or memberships, or you use a subscription service to complete your work, make sure you expense those costs.
• Business premises: expenses related to a business premises can be claimed. If you work from home, an allowance can be claimed to compensate you for this as well.
• Uniforms/workwear: the purchase and cleaning of workwear can be expenses through your business.
• Marketing: costs for advertising and marketing can be expensed. It is important to remember that client and supplier entertaining is not an allowable expense, however, and tax relief cannot be claimed on these expenses.
• Training courses: always remember to include expenses such as training and refresher courses. If you require health and safety training or other specialised courses, make sure they're expensed.

Flat rate allowance

There is an alternative method of claiming expenses that you should consider. HMRC offers a £1,000 flat-rate expense. This can be claimed by any sole trader and effectively means that regardless of actual expenditure, £1,000 of tax relief can be claimed. This also reduces the administrative burden of having to sift through your receipts and invoices, so should be considered by traders spending more than £1,000 a year.

If you want to find out more about your tax position as a self-employed person, please do give us a call on 0115 955 5500 or email enquiries@pagekirk.co.uk.