There are a number of tax reliefs, allowances and expenses that can be claimed by people who are self-employed. The tax reliefs, expenses and allowances are deducted from the profits of a business to minimise the tax due to be paid. The expenses must be used for the business as private expenditure isn’t deductible. There are also special tax reliefs for specified ‘capital items’ which are one off expenses used to improve or purchase an asset for the company.
It is usually possible to claim expenses, allowances and reliefs for the previous four years, in addition to the current year. However, some allowances and reliefs may have a shorter time limit to claim. Setting up and running a business incurs costs which are likely to fall into three main categories. The types of expenditure are business, capital and private. Capital expenditure is the purchase, creation or improvement of an asset which will help you to earn profits from your business. For instance, if you buy a van for business use this will qualify as capital expenditure, but hiring a van doesn’t qualify. Other types of capital expenditure include computers, machinery, business premises, furniture and fixtures. There are special rules for claiming some types of capital expenditure.
Business expenditure has to be “wholly and exclusively” for business use. This means the expense has to be totally for the business. If there is some aspect of private use, like a business phone which may be used occasionally for private calls, the business portion of the expense may be claimed. The expenditure for business and private use must be clearly established in order to claim tax relief. The full amount of business expenses may be deducted from the business profits, reducing the taxable amount. Private expenditure is non-allowable and includes expenses for day to day living, including any wage you draw from the business. Some of the main expenses claimed include purchase and repairs of premises, stock, motoring and travel expenses, payroll, finance costs, administration and professional fees.
The type of allowances, reliefs and expenses vary from business to business. Capital allowances are claimed if you purchase an asset for your business, like tools, machinery or a car. The cost of these items can’t be deducted from your business profits but a capital allowance may be claimed. The most common items which qualify for capital allowances are fixtures and fittings, plant and machinery and some buildings.
Motoring expenses are slightly more complex, with two ways to claim for them. It is possible to claim a fixed rate for each mile travelled for business purposes, using the mileage rates provided by HM Revenue & Customs. Alternatively, you can keep detailed records of mileage, claiming the actual business mileage travelled.
Expenses incurred in the maintenance of business premises may also be claimed. If you run a business from home you can claim the business portion of the costs. You may claim for expenses incurred for rent, rates, lighting, heating, repairs to premises and insurance.
Administration costs can also be claimed as business expenditure, like stationery, postage costs, marketing costs, telephone and faxing. Professional subscriptions can also be claimed if they are paid to a qualifying body. HMRC has a list of approved professional bodies which may be claimed for.
You can claim for tax reliefs, allowances and expenses by completing and submitting your self-assessment tax return. To claim for the year 2007-08 you must have made the claim by 5th April 2012. Any earlier years are now out of date and can’t be claimed for. For advice regarding types of expenses and reliefs it is advisable to seek professional advice.