Business expenses are the money that you have to spend in order to run your business. A self-employed business person can claim a deduction for tax purposes for all expenses which are ‘wholly and exclusively incurred’ for the business.
This sounds quite simple, but in practice, it can be quite complicated.
Using your private car for work
What expenses can be claimed?
- The cost paid for stock that you sell, or materials used
- Payments to employees and outside contractors, including Income tax and National Insurance paid on your employees’ wages. This does not include your own tax and NI payments, these are not a business cost and are not deductible.
- Rent, rates, gas and electricity for your business premises. If your business premises is your home this will be a share of the costs. The share must accurately reflect how much of these expenses are incurred for the business.
- Telephone costs
- Postage fees
- Business Insurance
- Advertising and marketing costs
- Motor expenses and other travel costs relating to business travel. This does not cover travel from your home to your business premises. If you work from home, the situation needs special care to decide what would count as business travel.
- Any VAT paid on any of your expenses which you have not been able to claim from HMRC if you are VAT registered.
You can find more detailed guidance on allowable expenses on the HMRC website. https://www.gov.uk/hmrc-internal-manuals/business-income-manual
What about expenses which are both business and personal?
There is a rule where if an ‘identifiable proportion’, for example, 40%, of the expense is ‘wholly and exclusively’ for the business, you may claim that proportion as an allowable expense against your business income.
If there is no separate identifiable business element you will not be able to claim for it, and it should be treated as a personal expense. Sometimes the term ‘dual purpose’ will be used for an expense of this nature.
Here are some examples:
Matthew is a Virtual Assistant. He has one telephone line in his house. He uses the phone to make and receive business calls and for personal calls in the evening and on weekends.
Is he able to claim this as a business expense? Yes, he is able to claim the business proportion of his phone bill. In this case, there is an identifiable business element – Matthew can simply look at an itemised phone bill and see the exact cost/proportion of his business calls.
Angela is a painter living in Oxford. She has a business client who lives in Edinburgh. She travels by train to Edinburgh to see the client but stays for a week as a holiday.
Is she able to claim her train ticket as a business expense? In this case, she is not. This is because there is no identifiable business element, the train travel covers her trip to see her client and her holiday. However, the separate cost of travelling from Edinburgh to her client’s home is a business expense and can be claimed.
