So, you’re officially registered and trading — beyond the birthing pressures of starting a new company. And as you approach your obligatory Self-Assessment returns, you’re asking yourself the money saving question: “What can I claim on tax?” This article outlines a number of things you need to consider to help you reduce your tax bill!
However, in order to slash your tax bill, it’s important to understand what comprises Self-Assessment and how you should register for Self-Assessment by deadline. Essentially, Self-Assessment is short for the “Self-Assessment tax return” and most business owners (self-employed sole traders, limited company directors, shareholders and LLP partners) are obliged to send their returns to HMRC each year outlining how much they have earned and from where they earned that income.
Depending on the amount of profit your company made in the previous year, the amount of taxable income may be higher or lower than previously returned. For this rather fickle fiscal reason, you’re permitted to offset some of your Self-Assessment tax bills by claiming a number of business expenses on your Income Tax Return.
Therefore, we’ve compiled the following list of expenses that could assist in your money saving venture and answer the golden question: “What can I claim on tax?”
“What can I claim on tax for mileage?” If your business practice involves travelling, it’s advisable to claim a mileage allowance as part of your Self-Assessment return.
If you drive a car or a van for work-related needs (for example, a mobile company or a field sales individual) you’re allowed to claim 45p off your tax bill for every mile you travel up to 10,000 miles. However, you can only claim 25p for every mile beyond the 10,000 miles.
So, let’s say you drove 11,000 business miles last year, that means you’ll be entitled to claim £4,500 (for your first 10,000 miles) and £250 for the additional 1,000 miles; therefore, a total sum of £4,750 can be claimed. However, motorcycles expenses must be claimed at a lesser rate of 24p per mile.
Additionally, you’re allowed to claim the following travel expenses:
- Breakdown expenses
- Hotel stays
- Vehicle insurance
- Parking charges
- Licence fees
- Public transport fares (train, bus, taxi, air fares)
- Fuel expenses
- Vehicle repair and service fees
- Food expenses for overnight business stays
Note: You cannot claim for non-business-related driving or travel expenses or claim for any fines that you receive while travelling between your home and normal place of work.
“What can I claim on tax in relation to office supplies?” A simple observation of your remote work desk will display a number of claimable items, including:
- Business related stationary
- Printing expenses (including ink and cartridges)
- Computer software used by your business (for less than two years)
- Computer software used by your business requiring licence renewal
- Phone expenses (desk and mobile)
- Fax machine
- Postage fees
You can make a claim for your laptop and/or computer so long as it’s only used for business purposes. If you purchased a personal computer in the previous tax year that is only being used for business-related work for 50% of the time, you can only claim that expense on a pro-rata condition.
For larger equipment and more expensive items such as computers and machinery, you may need to claim capital allowances.
“What can I claim on tax regarding professional help?” If you’ve hired a professional such as an accountant, architect, solicitor, surveyor etc., you can claim their services as an expense since you have paid money for their input to your business.
Additionally, you can claim costs for professional indemnity insurance premiums and a number of various bank and insurance fees, including:
- Bank fees
- Overdraft and credit card charges
- Interest rates associated with business and bank loans
- Hire purchase interest
- Payments on leasing
- Any alternative, qualifiable non-traditional finance payments
If your company practices cash basis accounting, you’ll only be allowed to claim up to £500 in interest and bank charges on your Self-Assessment form.
You’re not permitted to claim any legal fees related to the purchase of property or machinery — unless you’re using traditional accounting, whereby these can be claimed as capital allowances.
Note: As with travel expenses, you’re not allowed to claim any legal or financial costs you’ve incurred for fines that have been received by breaking the law.
“What can I claim on tax in relation to marketing?” Marketing your business is crucial and its related costs can often be extensive. Hence, it’s vital you claim marketing expenses when it comes to Self-Assessment.
HMRC permits the following marketing related business expenses:
- Your company’s marketing featured in newspapers or directories
- Mailshots (bulk mail advertising)
- Expenses associated with free samples you’ve produced and distributed
- Website hosting and maintenance fees
Note: Event hospitality expenses or entertaining clients and vendors are not allowed to be claimed as expenses for your Self-Assessment.
“What can I claim on tax with unpaid invoices?” This is often the least exploited consideration for saving on your tax bill. Business owners should be readily claiming outstanding or “unpaid invoices” as a viable business expense.=
When your business uses traditional accounting, HMRC permits claims for all the money (included in your company’s turnover) that is not going to be received by your business. This is labelled “bad debt”. However, in order to claim this expense, you must ensure that your company will never process/receive the payments for these invoices.
Unpaid debts cannot be claimed for the following:=
- Money not included in your turnover
- Finances related to the disposal of fixed assets (land, buildings, machinery etc)
- Money incorrectly properly calculated
- Your business is using cash basis accounting
“What can I claim on tax regarding clothes and attire?” Although you’re not permitted to claim the expenses on your entire clothes wardrobe, you can claim expenses on the following:
- Specific work-related uniforms
- Protective attire if needed for your work
- Actors/performers costumes
Note: Only necessary, work-specific attire qualifies as appropriate, taxable expenses; you cannot claim for everyday clothing even if you choose to wear such items to work.
“What can I claim on tax for subscriptions?” You can claim the subscription costs to professional bodies or trade publications to which you’re subscribed if they relate directly to your work. You can claim expenses on the following:
- Subscriptions to any trade journals
- Subscriptions to any academic journals
- Subscriptions/annual membership to professional organisation/union
Likewise, you can’t claim personal subscription expenses such as gym membership or lifestyle magazine expenses. Additionally, you cannot claim expenses for any political party payments.
Notably, you should not claim expenses for any donations you’ve made to a charity as a subscription, even if you’re donating on a subscriber-level membership — such donations have their own rules and terms (see Number 11.).
Mortgage and Utilities Expenses
“What can I claim on tax regarding property and utility expenses?” If you work remotely, you’ll have a number of claimable expenses to consider.
You are permitted to claim your residential gas, electricity and water bill as an allowable expense, but you have to calculate what portion of that bill actually applies towards your company. For example, if you work from a five-room apartment but you spend most of your time working in just one room, you can claim 20% of your annual utility costs as an expense on your Self-Assessment form.
The same terms are true for your mortgage or annual rental fees, as well as broadband and phone rental.
“What can I claim on tax in relation to employees?” If you hire staff (whether they’re permanent or seasonal employees), you can claim for the following things linked to your employees as expenses in your Self-Assessment return:
- Employee and staff salaries
- Agency fees
- Employer’s National Insurance
However, HMRC does not consider an employee’s nanny or childminder fees as a permissible expense.
“What can I claim on tax regarding my council tax?” Many people who return Self-Assessments tend to forget council tax as a claimable expense. If your residential office accounts for 40% of your property space, then you’re permitted to claim 40% of the costs associated with your council tax against your annual Self-Assessment tax figure.
“What can I claim on tax for donations made to charities?” Any donations you made to a registered charity or community amateur sports club (CASC) are completely tax-free, known as “tax relief”.
Typically, charitable donations can be made through the following means:
- Gift Aids
- Wage or pension contributions through a Payroll Giving scheme
- Land, property or shares
- Your Will
For example, if you donated £1,000 to a registered charity in the previous year and you’re a high earner being taxed at a 50% rate, you can reclaim £250 of that figure on your Self-Assessment form.
Note: Charitable tax relief does not apply for donations made on behalf of limited companies.
The £208 Deduction
Here’s a gem of an answer to the question, “What can I claim on tax?” Of all the Self-Assessment expenses you can claim on your annual form, the £208 deduction is quite simple. Surprisingly, HMRC permits a hassle-free deduction for all Self-Assessment customers who use their home in a minimal way to carry out extra business.
This deduction amounts to a “£4 per week” office deduction – which adds up to an annual deduction of £208 on your Self-Assessment form.
The most important thing you can do as an individual who fills out his/her own Self-Assessment return is to record all of your business expenses throughout the year. Hold on to all invoices and records so that your Self-Assessment form can be filled out easily, and more importantly, you don’t miss out on any tax claims that can save you money!
If you need more advice and assistance on what you can claim on tax, contact our professional and reputable company formations who will help you every step of the way.