I am self-employed and work from my home are there any expenses that I can claim?

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If you are self-employed and run your business from home, you can claim a proportion of your household expenses such as council tax, water rates, lighting and heating, rent or mortgage interest and certain repairs.  If for example your house has six rooms, excluding the kitchen and bathroom, and you use one room partly for business, you may be able to claim up to one sixth of your household expenses against your business income.

There are various ways in which home running costs can be apportioned, depending on how you run your business.  HMRC have several examples in their business income manual to illustrate how you could calculate this.

Is there an easier way to calculate the business element of my household expenses?

In a word yes.  You can use the HMRC simplified expenses which allow you to claim a flat rate based on the number of hours that you work at home, instead of doing the calculations above.

You can only use the simplified expenses if you work at least 25 hours per month from home, so it may not be the right option for everyone.  If you want to use the HMRC simplified expenses flat rates the amount that you can claim are as follows:

 

Hours business use per month Flat rate
25 to 50 £10
51 to 100 £18
101 or more £26

 

The flat rate allowances are relatively modest and may result in a smaller claim than if you apportioned your actual household expenses.  However, the flat rates above are easier to calculate and do not require you to keep detailed receipts of your household expenses.

What business expenses can I claim against my tax?

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Not all business expenses that you incur running your business can be deducted against your income for tax purposes.  ‘Allowable’ expenses are those which you can deduct against your trading income to calculate the profits on which you will pay tax.

Which business expenses are allowable?

For a business expense to be allowable, it must have been incurred ‘wholly and exclusively’ for the purposes of your business.  If you pay for something that is partly for business and partly for a private purpose, then the expense should be apportioned between the two.  For example, if you pay for a telephone bill where you have made both business and personal calls on one bill, then you need to apportion the total cost between the business element and the private element.  The business part will be an allowable expense and can be claimed against your trading income.

What is a disallowable business expense?

Not all business expenses are allowable for tax purposes.  Any expense that is incurred wholly for a private purpose is a disallowable expense and cannot be deducted against your trading income when calculating your taxable profits.

Some business expenses that you incur may be allowable, but are a capital rather than revenue for tax purposes.  Capital expenses cannot be deducted against your trading income, but may qualify for Capital Allowances instead.

What is the difference between a capital and revenue expense for tax purposes?

A capital expense is usually, but not always, a larger item of expenditure on something that you would expect to last for a reasonable amount of time, perhaps a year or more.

A revenue expense is something that lasts for a shorter period of time and is usually used up in your day to day business activities.  For example, paper or ink for your printer.  Most of your regular business expenses are likely to the revenue expenses and allowable for tax purposes.

This sounds complicated how will I know which expenses are allowable?

HMRC have produced a helpful guide (Help sheet HS222) called How to calculate your taxable profits.  This help sheet contains a useful table of some of the more common allowable and disallowable expenses.

If you’re not sure and need help completing your tax return, we would be happy to help.

Tax doesn’t have to be taxing and our simple fixed fee packages take the stress out of Self-Assessment.

Covid-19 support for the self-employed

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Being self-employed means that you are not entitled to Statutory Sick Pay (SSP).

In last weeks budget the Chancellor of the Exchequer announced that any self-employed person who is affected by Covid-19 or self isolating will be eligable for Employment and Support Allowance (ESA) from day one of sickeness, rather than waiting until day 8.

If you are over 25 and eligable ESA is payable at a rate of £73.10 per week.

More details and how to claim can be found here https://www.gov.uk/employment-support-allowance