As a sole trader or worker, one of the worst things about your job is having to pay taxes on the money you’ve just made. It’s a little easier to handle because HMRC lets you claim many different costs (hence the name “allowable expenses”), which often greatly lowers your tax bill. Here is a simple guide to explain what allowable expenses are and what expenses can I claim as a freelancer.
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What are Allowable Expenses?
What expenses can I claim as a freelancer? We have to understand what is allowable. Self-employed people, sole traders, and freelancers can claim allowable expenses as tax deductions against their earnings. These are business costs that HMRC lets them claim. You can only deduct expenses if they were “wholly and exclusively” related to work. You can’t count personal expenses as acceptable. If you use something for both business and pleasure, like your cell phone, you can only claim business-related costs. The government can ask you to show proof of all the costs you say are allowable. Making false claims for acceptable expenses on purpose can lead to major problems. If your allowed costs are less than £1,000 a year, it is better to claim the £1,000-a-year tax-free trade allowance. You won’t be able to claim any acceptable costs if you do that, though.
What Expenses can I Claim as a Freelancer?
As a sole trader, here’s a shorter list of what expenses can I claim as a freelancer
1. Business Costs
Goods or services for your business Fees for agencies, salaries, and other staff costs like bonuses, pensions, and training can all be claimed. You can also claim the cost of buying things or paying freelancers.
2. Rent, Utilities, and Insurance
- You can claim rent for the building you use for your business.
- If you own the building your business is in, you can claim the loan interest.
- You can get a tax break on some of your council tax if you use your home for business.
- These are things like water, electricity, gas, and business insurance. If you use your home for work, you can get a tax break on some of your energy bills. You can claim one-sixth of the bills if you use one room in a house with six rooms for business.
- You can claim the costs of fixing up business property or a room at home that you use for work.
3: Office Costs
- You can write off phone, cell phone, and internet bills that are for your business.
- The above figure includes the cost of stamps, paper, ink, small office tools, software, and mail.
- You can claim the cost of tools and equipment if you use cash basis accounting, which means you record income and spending when money changes hands.
4. Running a Business
- You can file a claim for interest on business loans, overdraft fees, interest on rent-to-own items, lease payments, and credit card fees.
- You can get up to £500 back for loan interest and fees if you use cash accounting.
5. Advertising and Professional Fees
- You can claim the costs of putting ads for your business in newspapers, websites, magazines, and phone books.
- This package covers the cost of free samples, direct mail, and making a website.
- You can claim the money you spent on hiring accountants, lawyers, builders, and other professionals.
- You can also claim membership fees for trade bodies or professional groups.
6. Vehicle, Travel, and Clothing
- If you use a vehicle for business, you can claim expenses like insurance, repairs, servicing, fuel, hire charges, and vehicle licence fees.
- Costs for business-related travel, like train, bus, taxi fares, or flights, can be claimed.
- You can claim the cost of a hotel room for work trips that last more than one night.
- You can also claim for meals during overnight trips.
- You can file a claim for clothes or safety gear that your business needs.
7. Things you Can’t Claim
- You can’t write off personal costs that aren’t related to your business.
- You can’t claim for the full cost of home utilities unless you have a dedicated workspace at home.
- You can’t claim for things that are purely personal, like personal clothing or meals that aren’t business-related.
What Expenses Cannot Be Claimed?
Parking fines and speeding fines are unacceptable expenses. Neither is the price of resolving tax disputes or legal fees. When purchasing land and machinery, you can deduct the associated legal expenses as capital expenditures if you use traditional accounting. The related legal costs cannot be written off as capital expenditures under modern accounting. Gas and driving expenses are not allowable for travelling from your home to your regular workplace.
Like everyone else, you only have to pay for the fuel to get to work. You can claim the expenses as allowable charges if you must travel for work. You cannot claim work clothes that aren’t standard or protective, such as a winter coat, shoes, or a new business outfit. You cannot claim the money you pay for housework or childcare services. Additionally, supporting political parties or nonprofit organisations is prohibited. Unless you use it for your job as a sports trainer, you will be responsible for paying for your gym membership. The costs associated with repaying loans, overdrafts, or other financial arrangements are unacceptable.
Despite what most people believe, entertaining clients is not a reasonable expense. Catering for an event, such as taking a customer to a sporting event, is another expense that is not deductible. It’s time to expose another falsehood. You are unable to purchase a daily meal plan for yourself at work. You have to pay for your lunch every day just like everyone else. In some cases, such as when you fly to a trade show, you can claim fair costs for food.
How to Track Claimed Expenses
What expenses can I claim as a freelancer, and how do I track it? It is crucial to understand. Keep track of all the costs your business had during the tax year so you can file your claims. If you need to, this will show how much it cost. You won’t have to attach proof of expenses to your tax return. You need to keep records and papers in case HMRC calls you. You have to keep these records for six years. HMRC can look into claims from six years ago. If keeping paper receipts for six years is too much work for you, you can scan or photograph them and use them as proof. Back up these things to protect yourself in case something goes wrong with your technology. Once you have a list of all the allowed costs for the tax year, add them up and write down the total cost on your self-assessment tax return.
Conclusion
These are the final thoughts on the topic: What expenses can I claim as a freelancer? An employee’s tax savings might be huge if they know which costs are tax deductible. You may write off a broad spectrum of costs, including company supplies and advertising as well as professional fees for vehicles and offices. HMRC might need proof; hence, you should keep detailed records for up to six years and monitor your spending closely. You may optimise your tax deductions by staying orderly and declaring only reasonable company costs, therefore avoiding legal violations.
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