Self Employed UK: Expenditure and Allowances

When it comes to working from home, it can be difficult to decide what you should and should not be claiming for. As a rule, any expenditure incurred that is wholly and necessary for the purpose of the business is allowable. It should not be capital expenditure or private, although there are allowances available for types of capital purchases.

It is advisable to open a new bank account for business use, this can help define the expenses when it comes to filing returns and listed below are the types of expenses incurred on a regular basis by the business that are generally allowable:

  • Administrative expenses such as postage, advertising, stationery
  • Rent, Heat, Light
  • Phone, Fax, Internet

You may find that the bills for things such as phone and rent are mixed, private and business. Only the business proportion of this can be claimed. The basis should be relevant for apportioning these, e.g. the size of the room used as the office. When claiming for use of home as office the revenue are usually prepared to accept a modest amount, although if you choose to claim larger sums against mortgage or council tax you may be liable for Capital Gains Tax when selling the property. Generally by claiming modest amounts and avoiding the exclusive use of one room as business you can prevent this from arising.

This information can only be given as guidance and as such should be discussed with HMRC or your accountant for individual circumstances should there be any concern

Capital expenditure is incurred when money is spent on purchasing a fixed asset or adding to the value of an asset creating a future benefit. Any purchases for computers, furniture, fixtures, cars etc would be treated as capital expenditure, there are special rules surrounding allowances for these that need to be taken into account, it’s advisable to check the HMRC site as it gives good guidance on what can be claimed and how to treat it, alternatively a good accountant will be able to advise in this area.

Money spent on improving or creating a business asset would also be classed as capital expenditure

Cars and running costs can be treated in two ways. If you purchase a car for the business you can claim an allowance on this deductible from your taxable profits, the costs of running this such as road tax etc can also be claimed. This allowance is dependent on the emissions of the vehicle. Calculating these allowances needs to be done with care as only the business proportion is allowable on both the purchase and the running costs.

The other option would be to claim mileage. Mileage allowances are set by HMRC and are designed as a fixed rate per mile to cover the running cost of the car such as fuel, wear and tear and the cost of keeping the car on the road. Mileage and capital allowances cannot be claimed together, it’s advisable to work out what option is more beneficial to you and your business before proceeding with either.

If setting up from home you need to be aware that running a business may incur additional costs such as business rates

You may need to pay both council tax and business rates on your property and would need to check this with your local council. You should ensure tenancy and mortgage agreements along with title deeds do not place restrictions on business use. You may also need to review insurance cover to protect yourself, your premises and your business.

There are also allowances that are available for different types of businesses, to find out if your line of work is eligible for more allowances please get in touch for support.