1. Car expenses
Car expenses are a pretty complex area of expenses for small businesses. I could write a whole guide on this topic, but luckily there is a simple way to deal with it too.
If your business is under the VAT threshold, it doesn’t matter if you’ve voluntarily registered for VAT, you can claim a mileage allowance.
You’ll need to keep a log of your business mileage but for each mile up to 10,000 miles you travel in a car you can claim 45p per mile. After this you can claim 25p per mile. There are lots of apps you can use, or a diary.
If you use a motorbike you can claim 24p per mile, and even if you use a pedal cycle you can still claim 20p per mile!
You can also claim a passenger allowance if you are taking a colleague with you to training or a meeting. You can’t claim for the kids if you happen to be dropping them somewhere on the way!
Travel to and from a normal place of work cannot be claimed, but if you work from home every business mile you travel is a business expense.
2. Working from home
If you work from home, then you can claim a portion of your household expenses as business expenses. This includes:
- Mortgage interest
- Council Tax
The Apportionment method
Firstly, calculate the number of rooms in your home. Don’t include halls, bathrooms or toilets. Next work out the number of rooms you use for business purposes.
You will need to calculate the percentage of the time you use these rooms for business use too. Finally calculate the total of your household bills.
Bob has a 3 bedroom house, with one living room, one kitchen and one dining room. He uses one bedroom as an office.
This means 1/6th is used for business purposes.
Bob uses the office for 7 hours a day, but in the evening his children use it to do their homework. Therefore, the proportion of time used for business use is 7/9ths
Bobs total household bills come to £5660 per year.
His business expenses are:
(£5660 x1/6) x 7/9 = £726
The lazy method
The next option is to use the lazy method. HMRC allow a small monthly amount to be claimed for the use of home as an office. It is based on the amount of time you spend working at home, and not the space you use.
It is calculated as follows:
£10 a month for 25 hours to 50 hours working from home.
£18 a month for over 50 to 100 hours
£26 a month for over 100 hours
Which is best? It really depends. You should do both calculations to get an accurate answer.
If we take the example of Bob. If he followed the lazy route he’s be able to claim £26 x 12 months or £312.
From our earlier example you’ll be able to see that Bob would be able to claim expenses of £518 more just by taking some time to do a simple calculation.
This includes items such as business cards or compliment slips, as well as the more usual pens and paper. You can claim tax relief on the full amount of this cost – its my favourite tax-deductible treat.
4. PostageYes people do still post things. Don’t; forget to make a note of stamps you use, chances are you had them already so its easy to forget to make a note and include them in your accounts. Remember it all adds up so record everything.
5. Professional subscriptions
You can claim tax relief on the cost of annual subscriptions paid to a professional institute or society, if membership of that body gives you the right to use a qualification and you use that qualification in your business. For example, a self-employed bookkeeper could claim the cost of their Institute of Bookkeepers subscription. You can also claim tax relief on the cost of subscriptions to trade associations such as your local Chamber of Commerce. You can check the approved list on HMRC
6. Telephone and Broadband
As a sole trader, the chances are that you’ll be using your home telephone and/or broadband for business use as well as personal use.
If this is the case, then like other household bills you can claim a portion of the cost.
It will take a bit of work to calculate the proportions of each. The simplest way is to keep a log one week every two months or so. As long as these weeks are representative then it should suffice.
Line rental as well as business calls are a legitimate expense.
The alternative is to get a second business line, but this can be costly. There are alternatives like VOIP or voice over internet protocol which can give you a business line using your broadband at a fraction of the cost of a second line.
7. Training Costs
If you are learning something new then the costs of this cannot be claimed as a business expense. This is seen as a capital expense in the same was as website development.
If, on the other hand, you are updating a skill you already possess then this can be claimed as a business expense. Be prepared to justify your reasoning here and as always, if in doubt seek professional advice.
You can only claim the cost of flights if the primary purpose of the journey is business. If it was mixed business and private, then you can only claim costs that you can clearly separate from the private part of the journey. If you can’t separate them, you can’t claim anything.
As with flights is it was just for business you can claim the full cost, if not only the portions that can be separated can be claimed.
Tolls and car parking
You can claim tax relief for the full cost of tolls and car parking fees you pay while travelling on business. If you are claiming tax relief using the mileage method, you can claim tax relief on the costs of tolls and car parking in addition to the mileage. Don’t forget, however, that you can’t claim tax relief on parking fines or speeding tickets.
Same as for hotels and flights – only the portion that can clearly be shown to be for business can be claimed.
If you need to have insurance to carry out your business, then this is a business expense you can claim. This includes public liability insurance, employer’s liability insurance or professional indemnity insurance but is not limited to these.
10. Magazine subscriptions
If you subscribe to a magazine which is relevant to your field of business, for example a web designer can subscribe to a web design magazine like .net, then this can be claimed as a business expense.
11. Networking Meetings
Costs of attending networking meetings to promote your business to others is also a legitimate business expense.
12. Professional fees
And last but not least (in my opinion) The cost of hiring a professional for your business like a solicitor to draft your contracts or a bookkeeper or accountant to keep your accounts are also a business expense you can claim. So by hiring a bookkeeper you can actually reduce your tax bill. For more details about these circumstances, visit HMRC’s guidance here: http://www.hmrc.gov.uk/manuals/bimmanual/BIM46400.htm
The expenses you can legitimately claim vary from business to business so it’s always worth checking with a bookkeeper or accountant. The basic rule for any expense to be allowable is that it must be ‘wholly and exclusively’ for the purposes of carrying out your trade.
Remember that you need you keep evidence of the expenses for 6 years after the end of the tax year they are incurred.