Hello there. Nicholas Campion here from 1st
Formations and in this video we're going to be looking at 12 self-assessment expenses that
you maybe didn't know that you could claim. As always, this video is part of our Whiteboard
Thursday video series, where we take a look at all of the aspects of running UK limited companies,
so make sure you 'Subscribe' to our channel if you want to keep up to date with all of our insights,
advice and inspiration. But for now, let's get going. So, running your business isn't always easy,
especially where accounting is concerned. As a business owner you'll have a
range of reporting regulations and requirements to fulfil for both HMRC and Companies House on
behalf of your company, but what some aspiring entrepreneurs may not realize is that when you
start your own business, you also need to register for self-assessment. Self-employed sole traders,
Limited Company Directors, shareholders, and LLP members all of these, are obligated to register
for self-assessment and in turn to send in self-assessment tax returns to HMRC every single
year. And based on their earnings, most individuals will need to pay income tax and National Insurance
contributions on their taxable income. The amount you owe will vary dramatically, depending on how
much profit you made in the previous tax year. Fortunately, the UK Government appreciates
that running your own business can be an expensive endeavour. That's why you are allowed
to deduct the cost of some of these business expenses from your profit, thereby reduce the
amount of tax you owe through self-assessment. So, to kick off our list of 12 self-assessment
expenses that you may not have known that you can claim, I will be starting with number one, and
that is office supplies. If you are having trouble finding business expenses to claim
on your self-assessment return well then you don't really need to look
any further than the desk in front of you. HMRC will allow you to claim a range of expenses
pertaining to your office supplies, including your desk phone, your mobile phone, your fax machine,
postage costs, business stationery, printing costs, any computer software that your business uses for
less than two years, and any computer software that your business uses and makes regular payments to,
in order to renew the license. You can even claim for your laptop and tablet or home computer,
but only in so far as it is used for business. That means if you have purchased a family computer
in the previous tax year, that you're only using for business 50% of the time, then
you can claim that cost of that computer as a business expense on a pro rata basis. For some
bigger items like computers or expensive software, you may find you need to claim
these expenses as capital allowances. So, number two on our list is donations to
charity. If you gave money to charity last year, you should be claiming those donations
as self-assessment expenses on your tax return. All donations made by individuals to registered
charities or community amateur sports clubs are 100% tax-free. This is called tax relief and how
it works depends on how you choose to donate the funds. Typically, charitable donations are
made through a gift aid or directly from your wages or pension through a payroll giving scheme,
land property or shares, or through your will. Charitable tax relief rules also
apply to sole traders and partnerships, but not for donations that are
made on behalf of limited companies. Number three is mileage costs. If you drive
a car or van for work, you can claim money off your tax bill for every mile travelled. Now
you'll need to be conscious of the mileage permitted, because
there are going to be limits on here. It is also worth looking at other travel expenses
that you can claim on your self assessment return, and allowable business expenses here
include things like vehicle insurance, repair and servicing, fuel parking, hire
charges, vehicle license fees, breakdown cover, train, bus, air and taxi fees, hotel rooms
and meals on overnight business trips. That being said, it is worth noting that you cannot
claim for non-business driving or travel costs, fines you incur while driving, or any travel
between your home and your regular place of work. Number four: legal and financial costs. When
calculating your self assessment expenses you should also include any costs associated with
hiring an accountant, a solicitor, a surveyor, maybe an architect, or basically any professional
that you've paid to assist you. Likewise, you can claim costs for professional indemnity
insurance premiums, as well as a range of other bank and insurance cost. Allowable expenses
here also include bank, overdraft and credit charges, interest on bank and
business loans, higher purchase interest leasing payments, and alternative finance
payments such as Islamic finance. If you are using cash basis accounting, be aware that there are
limits to the amount you can claim in interest and bank charges on your self assessment form. You
are allowed to claim any legal costs associated with buying property or machinery, although if you
use traditional accounting, you can claim for them as capital allowances instead, similar to
travel expenses. You are also not permitted to claim any legal or financial costs that you've
incurred as a result of you breaking the law. Number five: Unpaid invoices. This is probably one
of the most beneficial and unused expenses that you should be claiming as a business owner.
If you are using what is called traditional accounting HMRC allows you to claim for any amount of money included in your turnover that you aren't planning on receiving. What this is called is
bad debt, and the only prerequisite for including it in your expenses is that you must be sure that
these invoices will never be recovered from a customer in the future. You aren't allowed to claim
for any unpaid debts that aren't included in your turnover, are related to the disposal of fixed
assets such as land building or machinery, and those which aren't calculated properly. It is also
worth noting that bad debt cannot be claimed on self assessment forms if you are using something
called cash basis accounting. Now this is because you've not received the money from your debtors
and because cash basis accounting only records the income on your return that
you have actually received. The sixth one: The cost of
marketing your business. HMRC will allow you to claim business expenses for
any advertising you've done in newspapers, directories, bulk mail advertising, any
costs associated with free samples that you produce and distributed, and of course web
hosting and maintenance costs. Of course, there are a few exceptions to the rule. You are not permitted
to claim for entertaining clients or suppliers or event hospitality expenses as
part of your annual self assessment return. Number seven: We're going to move on to
the other side of the board now and get ready for this because number seven is your clothes. Now,
you are not allowed to claim the contents of your entire wardrobe as an allowable expense, but there
are certain items of clothing that you can claim to reduce your self-assessment tax bill at
the end of each financial year. Permitted clothing expenses here will include things like
work-related uniforms, protective clothing or maybe costumes for actors and entertainers. Unlike
travel expenses, you you are allowed to deduct the entire cost of work-related clothing from your
profits on your annual tax bill. Unfortunately, you can't claim for everyday outfits that you choose
to wear to work to qualify as a business expense. These clothes have got to be necessary
work specific items of clothing. Now number eight: Staff costs if you employ
permanent workers, seasonal employees or contractors to help you run your business, you can claim a wide
range of expenses associated with their employment, including employee and staff salaries,
bonuses, pensions benefits, agency fees, subcontractors, employer national insurance,
and business related training courses. There are a couple of staff costs HMRC does not
view as permitted business expense. For example, you are not allowed to claim costs associated
with a nanny or a childminder as an expense. The ninth self assessment expense that you
might not know you could claim is subscriptions. If you are subscribed to any professional
bodies or trade publications that directly feed into your job, then you can claim the cost of
those subscriptions as self-assessment expenses. Permitted expenses include a subscription to
any trade professionals or academic journals. Likewise a subscription or annual membership to a
professional organisational union will also apply as a permitted expense. Now, you should note that
any payments you make to any political party do not count as claimable subscriptions. Likewise, you
can't claim personal subscription expenses like gym memberships or glossy magazines. It is also
worth noting that you should not claim donations you made to a charity as a subscription, even if
you are donating on a subscriber level membership. These expenses here can be tallied
up as charitable donations which have their own set of rules and which we very
briefly touched upon over previously. Up next at Number 10: Your mortgages and utilities.
If you work from home, you've got a whole range of self assessment expenses you should be claiming,
although there are some crucial caveats you need to bear in mind. You can claim a proportion of your gas, electric, water, broadband and telephone bills as allowable
expenses when working from home; however, you must calculate how much of each bill actually applies
to your business. For example, if you work from home in a five room house, for this purpose kitchens and
bathrooms do not count as a room, and only one of these five rooms is used exclusively for business
purposes. Well then, that means that you can claim 20% of your annual bills as self assessment
expenses on your tax return. The same rules apply to your mortgage interest, but not capital
repayments or annual rent costs if the room serves another purpose, say for example being a spare
bedroom, or you only work from home one day a week. You need to apportion the costs associated with
the room according to the business use. Now, HMRC does not provide exact guidance on how
this should be done; you simply need to apportion the cost between the business use and private use
on a fair and reasonable basis. It is worth bearing in mind that if you sell your home, capital gains
tax will apply for the part of the property used for business, unless it serves a dual purpose.
So, for this reason it's usually best to avoid having somewhere in your home
solely for use for business purposes. Number 11 here is Council Tax. A lot of
self assessment users tend to forget about Council Tax when calculating their
business expenses. But in the same way that you are permitted to count a portion of your
mortgage interest and/or rent or utility bills against the cost of your tax bill, you can
also factor in part of your Council Tax bill. The same rule applies regarding how to calculate
the amounts you're allowed to chalk up as an expense. If your home office accounts for
20% of the space in your property, then you are allowed to claim 20% of the costs of your
Council Tax on your self assessment tax bill. Finally, the twelth self assessment expense
that you probably didn't know that you could claim is the flat rate simplified expenses. Now, of
all the self-assessments expenses that you should be claiming on your annual tax return, simplified
expenses are the easiest. The clue's in the name. HMRC allows for a no-quibble flat rate deduction
for sole traders and partners in a business partnership who work from home for at least 25
hours per month. The flat rate will depend on the amount of actual hours of business use per
month. It does not include broadband or telephone expenses, so you can claim these costs in addition
to the flat rate. While simplified expenses are quick and easy to include in your self-assessment
tax return, you may find that you're missing out on the opportunity to deduct
more business costs from your tax bill. HMRC's online expenses tool will help you determine
whether it's better to claim simplified expenses or calculate the actual cost of working
from home. So then, what's the bottom line? At the end of the day there are loads of perfectly
reasonable self-assessment expenses that HMRC will be willing to accept as part of your tax return,
particularly if you're using simplified expenses. That being said, it is crucial that you are
able to prove that these expenses are valid. That means you need to keep records of all of your
business expenses as proof of your costs. You don't need to send these records in as proof of expenses
when you submit your self assessment return, and indeed many people will never be asked to see theirs.
But if HMRC does choose to look into your accounts and ask to see proof of your expenses, then you've
got to make sure that you have them to hand. And that's everything there. So those are
the 12 self-assessment expenses that you can and should claim for. Do remember that
the rules around self assessment expenses change quite frequently. You can view the
most up-to-date information for the tax year in our dedicated blog post on this very
topic, and you can find a link to that post in the description below. If you have any
questions, please do leave a comment and don't forget - if you want to be the first in line
to receive notifications for whenever we post new videos, just like this one, then make sure you
hit that 'Subscribe' button. We'll see you next time. Cheerio.
