11 STEPS TO SETTING UP AS A SOLE TRADER (SELF-EMPLOYED) - Post 8
ITEMS TO DO BEFORE TRADING Cont'd
9. SELF-EMPLOYED ALLOWABLE EXPENSES
Running a business, you will incur expenses which if an allowable expense can be deducted from revenue income to work out your taxable profit. Personal drawings from the business are not an allowable expense.
There are different rules if you run a limited company.
The following are allowable expenses you can claim costs
· Office costs
– postage, printing, printer ink and cartridges, stationary, phone, mobile, fax and internet bills. Computer software your business uses for less than 2 years. Computer software if used for 2 years or more but paid via regular payments for the licence.
Computers or printers are allowable under cash basis accounting, as capital allowances under traditional accounting
Any non-business use of premises, phones or other office resources.
· Travel costs
– vehicle insurance and licence fees, repairs and servicing, breakdown cover, fuel, parking, hire charges, train, bus, air and taxi fares. Hotel rooms, meals on overnight business trips
Non-business driving or travel cost, fines, travel between home and work
· Clothing Expenses
– uniforms, protective clothing required in your work. Costumes for actors or entertainers.
Everyday clothing (even if worn for work)
· Staff costs
– salaries or subcontractor costs, bonuses, pensions, benefits, agency fees, employers National Insurance.
Carers or domestic help
· Thing you buy to sell on
– stock or raw materials, direct costs from producing goods.
Any goods or materials purchased for private use. Depreciation of equipment
· Financial costs
– Accountancy, legal plus other professional fees. Insurance, bank and credit card charges, interest on bank and business loans, hire purchase interest, leasing payments, alternative finance payments
Legal costs of buying property and machinery
Fines for breaking the law
· Running costs of your business premises
– heating, lighting, water, business rates, business premises rent, property insurance, security. If work from home only the part used for business office.
So, if your home consists of 4 rooms and you use one as an office, your electricity bill for the year is £400 divide this by 4 meaning you can claim £100 if you work only 1 day a week then divide £100 by 7 giving an allowable expense of £14.29.
Repairs and maintenance of business premises and equipment.
To install or replace equipment is allowable expense under cash basis accounting, as capital allowances under traditional accounting
Expenses or allowances for buying building premises
· Advertising or marketing
– website costs, business cards, adverts in newspapers or directories, bulk mail advertising, free samples
Entertaining clients, suppliers and customers, event hospitality
– trade or professional journals, trade body or professional organisation membership if business related
Political party payments, gym membership fees, donations to charity but you may be able to claim for sponsorship payments
Sponsoring a charity
Charity sponsorship payments are different from donations because your company gets something related to the business in return.
You can deduct sponsorship payments from your business profits before you pay tax by treating them as business expenses.
Payments qualify as business expenses if the charity:
o publicity supports your products or services
o allows you to use their logo in your own printed material
o allows you to sell your goods or services at their event or premises
o links from their website to yours
If you’re unsure whether a charity payment qualifies as a sponsorship payment or a donation, contact the charities helpline.
· Costs of training courses
– related to your business i.e. refresher courses
Start a new business, expand into new areas of business, including anything related to your current business
If you are using the £1000 tax-free ‘trading allowance’ you are unable to claim expenses.
This is a tax exemption of up to £1,000 in a tax year for individuals with trading income from:
· Casual services, e.g. babysitting, gardening
· Hiring personal equipment, e.g. power tools
For those with an annual gross income of £1,000 or less from the above categories there is no need to advise HMRC, unless:
· You are unable to use the allowances
· You must register for Self-assessment and declare your income on a tax return