When I first mentioned that I was starting a blog about accounting one of the more popular responses (apart from the sarcastic ones) was “What business expenses can I claim in order to reduce my tax liability?” There is quite a bit of confusion around this area; including someone I know from Winchester, who told me they knew an acquaintance that had been informed they could claim for her dog as security as she had clients at home!
So what business expenses can an individual claim back on their self assessment tax returns?
As with most things with HMRC there is one set of rules for self employed and another set for employed. For an employee the expenses must be “wholly, exclusively and necessarily incurred in the performance of their duties” (I will go into more detail regarding employee expenses next month). For a self employed individual the expenses must be “wholly and exclusively” for purposes of trade. This basically means that only expenses incurred as a result of carrying out your business can be claimed. If you rent an office to carry out your business activities, purchase any materials to make the goods that you sell, advertise your business, pay accountancy and other professional fees or subscribe to trade or professional bodies, these are all allowable expenses for self assessment.
A more comprehensive list of allowable and disallowable expenses can be found by Googling the following link :
Google the following link www.hmrc.gov.uk/worksheets/sa103f-notes
What about expenses that are partly for business and partly for personal?
An example of this is you use your own car to drive to clients; you have a mobile phone for business and personal use or you work from home. The rules here are pretty straightforward although they require a bit of discipline in keeping records. In simple terms the business amount of any shared expenditure is reclaimable, the personal amount is not.
How do I work out what the business amount is?
For car use it is advised to keep a mileage log of all business miles (which you can also use to work out the percentage reclaimable on insurance, repairs, servicing, vehicle licence fees, motoring organisation membership etc.) For mobile and home phones use the itemised bills for business calls and the percentage of line rental reclaimable. For working from home (claiming back electric, heating etc.) you will need to work out the percentage of business use (Please note this needs to be a realistic estimate as HMRC may well ask you to justify it!)
What about business expenses that are disallowed for self assessment tax reason?
Some expenses that you may incur as part of your business are not allowed to be claimed back on your self assessment. Although they are costs incurred as a result of carrying out your business activities they are disallowed as they are open to abuse. The main one of these is entertainment of clients, suppliers and customers. These expenses will have to be taken off before working out your total allowable expense. Entertainment of employees is an allowable expense so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment which is provided for customers. Eg. Staff Christmas party is an allowable expense
What can I claim for travel and sustenance?
You can claim for business travel expenses whether you travel by car, train, bus, taxi, plane, boat, bike etc. but you cannot claim for travel to and from your home and place of work (or base). You do have to be careful with what is regarded as your base. HMRC are quite strict with rules on this, for example if you have a client that you see on a regular basis (say once a week) travel from your home to the client would not be allowable as a business expense as the client’s offices are seen as one of your bases.
The current flat mileage rate for 2014 is 45p for the first 10,000 business miles and 25p for any additional miles. This covers costs including fuel, maintenance and servicing.
Sustenance (i.e. food and drink) can be claimed only for overnight business trips. You can claim for alcohol!
Google search : HMRC – Business Income Manual Table of allowable expenses
So in response to whether you can reclaim for your dog I am afraid this would be a no.
If you have any specific queries or concerns it is always best to ask and if you have any further questions drop me an email at firstname.lastname@example.org
Next month I will be looking at allowable expenses if you are employed. Have a great month.