Self Employment - Business expenses
Ok here are some things I learnt on the HMRC Self Employment Seminar re what counts towards business expenses (I’m also going on the Self Assessment for the Self Employed which is going to be more detailed and concentrate on the actual Self Employment pages of the Tax Return itself).
Anyone who is about to become Self Employed or is newly registered as Self Employed with HMRC (which you have to do within three months of starting) can go on these courses (by the way you can be registered ‘self–employed’ even if you are working full/part time in ‘employment’ elsewhere).
We did a bit on National Insurance Contributions and I can elaborate on that later if anyone is interested, plus what is Taxed.
The main bit I was there for was to understand about Allowable Expenses that can be put against the business expenditure. Most are obvious –
Raw materials or goods bought for resale, and direct costs of producing goods sold.
Telephone (business proportion only if working from home – more later), postage, stationery, advertising
Rent, rates, power and insurance costs for premises (I will do a separate post about using own home)
Repairs and maintenance of business premises and equipment.
Car expenses (will do separate post about car travel). Travel expenses – air, rail, ferry, taxi fares, parking and tolls incurred on business trips (business trip is defined as for the purpose of generating sales/contacts/clients/leads). Hotel and meals for overnight business trips. (We did have a warning that going to see a client/supplier that lived near your mother/family etc too often may preclude it from being a business trip…they have eyes/ways/means…)
Accountant’s and other professional fees.
Protective clothing (clothing that has permanent logo advertising business may be allowed but not things like a suit for seeing customers – even if you only wear it for that)
Interest on bank loans, bank charges, overdraft, HP (for the business only – that’s why it is useful to have sep bank acct for business)
Irrecoverable debts written off.
Trade or professional journals and subscriptions (books are not allowed even if they are text book type).
Continuous Professional Development (CPD) - this is training you have to/must continue/refresh after first qualification/certification in order to carry on your business e.g. Corgi registration. (The initial training costs to become qualified are not allowable as a business expense - more below in ‘not allowed’)
Things that are not allowed to be shown as business expenses include;
Cost of goods or materials bought for private use (this includes gifts to family and friends – if you are going to make all your Christmas presents you have to either buy the raw materials out of your own money, or deduct the retail cost – what you would have sold it for, not the raw materials cost – from your business expenses.)
Any money you pay yourself as wages (or drawings), your NI or pension contributions.
Motoring fines, travel costs between home and business (i.e. if you have a shop or other premises you work at on a regular basis)
Cost of improving or altering business premises or equipment
Non business proportion of telephone, PC etc
Entertaining clients, suppliers and customers, hospitality at events (e.g. paying for/providing lunch at a business meeting, or if you have a ‘launch party’, it is at your own expense).
Other meals – I asked him to explain this and he said e.g. if you went 20 miles to see a client at 11.30 and bought yourself a sandwich afterwards at 12.30 in the garage/Tesco on the way back then that wasn’t an allowable expense. But if you had gone to London for the day (and it wasn’t local!) and was away from home for, say 8 hours, then lunch that day would be allowable.
Payments to clubs, charities or political parties. Although he said sponsorship of something like the local football team would be OK if they displayed your logo on their shirts and were likely to increase sales as a result (i.e. advertising) (What goes with jewellery?? Gymnastics team, cheerleaders??)
Books and training costs (if you want to go on a course to improve your wirewrapping/soldering skills you cannot put that as a business expense. But, for example, if you are a certified PMC teacher and need to go on subsequent courses to learn new techniques to be able to teach them to students, then that is an allowable expense – continuous professional development.)
Please note that any expenditure on equipment, however large or small, that you expect to last 2 years or more is called Capital Expenditure and should be recorded separately from Business Expenses as listed above (let me know if you want to know more about that).
Any questions so far? I hope someone finds this useful? Those of you who are old hands at this please add anything that you think is relevant, or have learnt about, business expenses since becoming self employed
More posts to come on;
Calculating costs when using part of your own home for self employment purposes
Different methods of calculating motoring costs
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I look forward to the next lesson!
Originally Posted by Ominicci
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