Dealing with the taxation side of things is not necessarily the most exciting part of running your own business and working your yourself, however it can be one of the most important.
Reducing your taxable profit and saving on your taxes is important for freelancers and sole traders and there are a number of expenses that self-employed people can claim to reduce their tax bill.
In this guide we will be having a look at some of the more common allowable expenses which self-employed people can claim for:
If you run your business from your own home, or have purchased or are renting a building from which to conduct business then you have the option of filing for a number of tax deductions under the Business premises expense. A workspace is a space used regularly and exclusively, and that is the principal location of your business. Deductions are based on what amount of your home is used for your business in terms of percentage. You need to figure out your home office expenses such as rent, phone bills etc.
Telephone and internet
Similar to the Business Premises, you are eligible to claim your business phone and internet as an allowable expense. The only difficulty that can arise in this is similar to proving what portion of your house is used for business purposes (You cannot claim deductibles on your entire bill, unless you have a specific work phone).
You are allowed to claim for clothing (or uniforms) in your tax return as long as you can prove that they are directly necessary for your work, however everyday clothing may not be claimed for, even if it is clothing worn to work.
If you employ other members of staff, there are a number of areas where you can claim business deductions for them, such as: employee and staff salaries, bonuses, pensions, benefits, agency fees, subcontractors and National Insurance payments for your employees. All of these expenses can help decrease your overall tax bill considerably.
Meal and Travel
Travel expenses may be deducted if the trips being taken are benefitting the business. Self-employed people may claim back on bus, air, train and taxi fares, as well as hotel or guesthouse bills. Meal expenses fall under more or less the same category as travel expenses – you may be able to claim back some deductible tax on business related meals that you have paid for throughout the year. Business meals in this instance refer to any meals purchased whilst travelling for business. Receipts of these must be kept to provide that the time and date match those of the trip.
Reselling Goods and materials
Self-employed people may be able to claim back expenses on goods purchased for resale. Stock, raw materials and direct costs incurred from producing goods may be expensed, while any goods bought for private use, or depreciation may not be expensed.
You may file for car expenses in the following areas: vehicle insurance, vehicle repairs and servicing, petrol, parking, vehicle licence fees, and breakdown cover. It may be possible to calculate your car expenses using a flat rate for mileage, rather than the actual costs of running the vehicle.
Legal and Financial Costs
As a self-employed individual, you are eligible to deduct any expenses incurred in hiring legal assistance or financial experts. Expenses can also be deducted for hiring accountants, solicitors, surveyors and architects, provided you can prove that they were engaged in work related to the business. You may also make a claim for professional indemnity insurance premiums.
Advertising and Promotion
You may receive a deduction for costs associated with advertising and promoting your business if you are self-employed. Advertising is a broad category, and you will need to be able to prove that the services you are claiming a deductible for directly assisted with spreading the word about your company. Advertising through different media channels such as newspapers, and directories is covered, as well as mail advertising in bulk and free samples. You may also claim a deductible on costs for producing advertising materials such as business cards, posters, brochures, operating your website including site maintenance and hosting fees.
Hopefully this handy tax tips will point you in the right direction and have brought to light areas which could prove to be a considerable help in reducing your tax (and national insurance).
However, if you would like further information please feel free to get in touch for a free consultation.