How to Calculate Your Total Allowable Business Expenses. The easiest way to reduce your tax bill is to make sure you are claiming for all the expenses you are legally allowed to. Here’s some advice on which expenses you can and can’t claim for, as well as a spreadsheet to help you add your expenses up.
What are Allowable Business Expenses
When you are self-employed, there will be costs that you just need to pay for. Provided they meet the strict criteria of HMRC you can deduct these against your income to reduce your tax bill.
Expenses which you can deduct against your income are known as “Allowable Business Expenses“.
Expenses which you can’t deduct against your income are known as “Disallowable Business Expenses“.
Claiming expenses incorrectly results in penalties and tax demands.
Here are some example allowable and disallowable expenses:
|Expense Category||Example Allowable Expenses||Example Disallowable Expenses|
|Costs of goods bought for re-sale or goods used||- goods for you buy to sell on (stock)|
- raw materials to make your products
- direct costs from producing goods
|- goods and materials bought for private use|
|Car, van and travel expenses after private use proportion||- vehicle insurance|
- repairs and servicing
- hire charges
- vehicle licence fees
- breakdown cover
- train, bus, flights and taxi fares
- hotel rooms
- meals on overnight
- business trips
|- personal travel costs
- fuel, insurance, repairs and servicing if you use the flat rate method
- your daily lunches
- cost of the car (you need to claim capital allowances instead)
- travel between home and work
|Wages and other staff cost||- employee and staff salaries|
- pension contributions
- agency fees
- subcontractors and freelancers
- employer’s National Insurance
|- domestic help
- babysitting while you work
- your salary/drawings
|Rent, rates, power & insurance||- office rent |
- business rates
- electricity, gas and water
- premises insurance
- use of home
|- mortgage, rent and utility bills for your own home if you use the flat rate method to claim for use of home|
|Repairs and maintenance of property and equipment||- bike repairs|
- equipment eg: laptops, printer and mobile phones
- office repairs
- premises repairs
|- cost of buying a building
- alterations to install or replace equipment if you use traditional accounting (claim capital allowances instead)
|Accountancy, legal and other professional fees||- accountants fees|
- professional indemnity insurance
|- professional fees of a personal nature|
|Interest, bank, credit card and financial charges||- business bank account charges, overdraft interest|
- business credit card interest and charges
- interest on bank and business loans
- hire purchase interest
- leasing payments
|- bank charges for your personal account even if you use it for your business
- If you’re using cash basis accounting you can only claim up to £500 in interest and bank charges.
|Telephone, fax, stationery and other office costs||- phone, mobile, fax and internet bills|
- printer ink and cartridges
- computer software
|- anything used personally|
|Other allowable business expenses (client entertaining costs are not an allowable expense)||- clothing|
- marketing & PPC
- samples you give away
- website costs
- trade journals
- professional memberships if related to your business
- training to keep your skills up to date
- personal use assets
- gym fees
- political donations
- charitable donations
- training for new skills
How to Claim Your Allowable Business Expenses
You claim for your allowable business expenses in the self-employment section of your self-assessment tax return.
When you use the short form self-employment section because your turnover is less than £85,000 you can choose to enter your expenses as one lump sum or give a detailed breakdown.
Whichever you choose to do, you’ll need to add up all your expenses, use simplified expenses (if appropriate to you) and keep all the receipts on file for 6 years.
Simplified expenses lets you claim for certain expenses using a flat rate, rather than giving you the hassle of saving your receipts or doing complicated calculations.
The expenses you can claim for using a flat rate are:
- business mileage for using your own vehicle for work;
- working from home;
- for a reduction at a flat rate for living where you work like if you own a B&B which you live in.
You can read more about Simplified Expenses here, as well as see some examples on claiming them
How to Calculate Your Total Allowable Business Expenses
Adding up all your business expenses can be overwhelming, especially trying to figure out where to start.
Self-employed business owners commonly need to look at:
- Bank statements;
- Credit card statements;
- ‘Out of pocket’ expenses (the bits and bobs you paid for from your own money in cash or via a personal bank account);
- Online statements such as Etsy or Amazon.
If you can, download any information you can as a CSV file or google sheet as this may save you a lot of time.
Business and Personal Expenses
When it comes to taxes, claiming for any personal expenses is a big no-no.
But it is common that you may have certain things that you use for business and personal reasons, like your laptop or mobile phone.
In these cases you can claim a percentage of the costs against your taxes. So if you use your laptop 80% of the time for work, then you’ll be able to claim 80% of its cost.
Allowable Expenses Calculator Spreadsheet
I’ve put together a spreadsheet to help get you started with working out your total allowable business expenses.
If you have downloaded your transactions as a file then you can copy and paste that information into my spreadsheet.
I’ve also included extra sheets to help you to calculate your:
- Mileage claim
- Use of home claim at the flat rate
- Cash expenses