self-employed expenses

Tax Allowable Expenses – A Guide to Self-Employed Persons!

Self-employed expenses can be deducted from the business turnover to calculate the overall tax required to pay every year. However, all the business expenses are not allowable. Therefore, as a self-employed person, you must know the cost that can be reclaimed on your tax returns. 

In this blog, you will come to know about

  • What are Allowable Expenses?
  • What costs are counted as Allowable Business Expenses?
  • How can you calculate self-employed expenses?


What are Allowable Expenses?

As mentioned, above all self-employed expenses can’t be subtracted. However, HM Revenue & Customs has set clear rules on what can be included and what you can’t include. So what exactly are allowable expenses? 

If you’re self-employed, your enterprise will have different running costs. You’ll deduct a few of these costs to operate your taxable profit are called allowable expenses.

For instance,

Your business turnover is £60,000, and you claim £20,000 in allowable debts. Then you are required to pay tax only on the remaining £40,000.

Looking for professional advice before claiming allowable expenses? Contact us now! We provide cheap accountants for small businesses at your service!


What Costs are Counted as Allowable Debts?

The costs that are counted as allowable debts and are:

  1. Office costs (counting enterprise premises costs) – Things you’d regularly utilize for less than two years, such as stationery, computer program, and printer ink, as well as lease, rates, control, and protection costs. 
  2. Travel costs – Commerce car or van and travel costs, counting fuel, enlist charges, breakdown cover, protections, transport passages, and remains.
  3. Business premises – security, utility bills, property insurance, maintenance and repair, and rent. 
  4. Stock and materials – the cost of your raw material, inventory, and the costs used in the production of the goods.
  5. Business Insurance – employers’ liability insurance, public liability insurance, and public indemnity insurance. Moreover, clothing, staffing, advertising & marketing, training courses, and all the financial costs of hiring are included in allowable debts.  

Get in touch to know about the tax reliefs you can claim on allowable debts!


Legal and Financial Costs 

you can calculate the cost in order to hire a skilled person like a bookkeeper, architect for business reasons, or a solicitor and can also incorporate credit card, overdraft, and bank charges. If you are using cash basis accounting, you can only claim up to £500 in bank charges and returns. There are possible bad debts with no expectations of receiving them back; you can receive them back by using traditional accounting. As with traditional basis accounting, you include these bad debts in your turnover. However, you can’t claim for the following:

  • Debts that are not added to the turnover.
  • Bad debts that are not properly calculated – only an estimated amount without clear calculations.
  • Debts that are associated with fixed assets like machinery, building, and land, etc.

In addition to the points mentioned above, fines for violating the law as business debts or refunding loans, overdrafts, and finance agreements are not included in allowable expenses.

How to deal with bad debts? Know more with cheap accountants in London!


How to Calculate Self-Employed Expenses?

 As a self-employed person, you must rely on your tax records to calculate the allowable expenses. Because for calculating it, you need to add all your debts from your bills and purchasing slips. Therefore it’s essential to keep a log of your records. In addition to that, calculating the self-employed expenses also depends on the type of accounting, whether you are using cash basis accounting or traditional basis accounting. 

With cash basis accounting, you record the expenses when you pay, but you keep a log of your expenses when you receive the bill or a receipt by using traditional basis accounting.

After you complete your tax return, you will get the choice to provide a single figure for your allowable debts or to provide a detailed breakdown. In the event that you choose to enter a single digit, you still have to compute all your expenses precisely and maintain a log of your performance in case HMRC inquiries your amount.  

You may be required to present the receipts and proofs of purchase if you are subject to a tax investigation. This is because HM Revenue & Customs says that a self-employed person must maintain tax records for at least five years after the deadline (31st January of the relevant year).


Quick Sum Up

We will sum up the discussion by saying that all self-employed expenses are not allowable expenses. Only those expenses are allowable that is mentioned by HM Revenue & Customs, as they have set up clear instructions for them. Hope this article helps you to understand that allowable costs better…!

 Though the Self Assessment tax deadline is in January (2022). You can complete your tax returns early to reduce the risk of mistakes.

 In addition to that, keeping the tax records is essential otherwise, you will miss out on a claim and make sure to claim all the possible allowable debts. 

Are you looking to register yourself for Self Assessment? Contact us now! We provide cheap accounting services in London! 


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