Were you a full time employee who has now started out as a self-employed person? Welcome to the community of 4.8 million self-employed people in the UK. One becoming one, it is necessary to understand the differences in taxation rules for the self-employed compared to full time employee.
Effective segregation of personal and business expenses is of prime importance. It might always not be possible and you may end up spending personally for a business expense. We will tell you how to claim those business expenses in this article.
Contrary to popular belief, this is a very simple process that involves some entries into the company accounts. Suppose you have made a business purchase and paid for it personally, you can enter the expense as a business expense in the account and note that you paid it from your personal account rather than the business account.
One way to sort this would be to get the money reimbursed at any time through a withdrawal or a reimbursement in the way that your company permits.
For an expense to be qualified as a business expense, it must be ‘wholly and exclusively’ a necessary business expense as per the rules laid out by HMRC. The business expenses can be deducted from the profits to arrive at a figure of taxable income for self-assessment.
Online accounting tools or your accountant will be able to classify the expenses for business and deduct the money for tax liability. If you don’t have an accountant, find an accountant or do a web search using the term ‘accounting firms near me’ to choose an accountant for you.
Expenses that can be claimed by a freelancer depends upon the nature of the freelancer’s work. The rule slated by the HMRC to qualify for tax exemption is that the expense should be an absolute necessity to run the business. The general rule as defined by HMRC for expenses to be “Wholly, exclusively and necessary”.
HMRC rules for business expense exemption can be complex and clarity about expense exemption can be given by your accountants with experience in managing businesses like yours.
Office, equipment and running expenses – All the office equipment like pens, stationery, postage, and other relative office expenses are exempted from tax. If you are a freelance writer, buying a new laptop and the software licenses that are required for your profession are eligible for tax exemption. Even phone bills for official calls are exempted.
Travel expenses – Business trips to meet clients, accommodation costs, fuel expenses for business meetings and transportation expenses for all modes relating to business are covered for tax exemption.
Clothing expenses – Clothing that is required for the business like uniforms, protective clothing and gear in a business environment, clothing with company’s logo etc. are exempted.
Business office rentals or expenses – Freelancers mostly work from home. Some people have dedicated offices for working. A reasonable proportion of the rent and the following costs are exempted from tax.
Legal and financial expenses – Accountancy, legal and other professional fees like the hiring of accountants, solicitors, surveyors, and architects for business reasons are allowable business expenses.
Marketing and entertainment expenses – Business Advertising expenses, certain digital marketing expenses, and website costs are allowable business expenses.
This is not a complete list of items that can be exempted. Allowable business expenses can vary based on the nature and size of the business. Finding an accountant and consulting them for your business will give a better idea to include all possible allowable expenses for tax returns services near you exemption.