Time for your annual tax return for HMRC? We’ve created a list of the top five business expenses most commonly overlooked.
You’re probably familiar with the principle, “If you don’t ask, you won’t get.”
Every year, millions of self-employed people miss the opportunity to make key tax savings, resulting in more of your hard-earned cash falling into the pockets of HMRC.
With that in mind, we’ve created a list, highlighting the top 5 business expenses that are commonly overlooked.
If you use your personal phone for work, you’re entitled to claim tax back on a portion of your phone expenses.
You can calculate a reasonable estimate of your work-related phone costs by working out the percentage of time you use your phone for work and simply multiply that by the total phone bill.
The calculation could include, the percentage of work calls from total calls as well as the percentage of data downloaded from your total downloads.
If you use your own vehicle for business-related travel, then you’re entitled to a tax claim known as the “mileage allowance relief”.
This covers things like fuel, road tax and any other expense related to using your vehicle, including general wear and tear.
Mileage allowance relief applies to any vehicle you use over the course of your work, such as a; car, lorry van or motorcycle.
To work out your business mileage, add up the total number of miles travelled for business this tax year, and multiply it by the applicable rates set by HMRC.
Just in case HMRC asks, it’s important that you keep an accurate record of all your travel details, which includes: date, mileage and the start and finish locations of every trip.
There are, however, some journeys that don’t qualify for a tax claim, such as your daily commute to the same location.
Although if your work involves you traveling daily, to different locations, to meet clients, then you can claim this in your mileage allowance.
If you’re a member of a professional body or organisation, such as the British Medical Association (BMA) or Association of Illustrators (AOI), this would qualify as a tax deductible expense. You can claim tax back on membership or license fees.
However, your membership must be related to your line of work and they must be monthly or annual fees as you can’t claim tax relief on a lifetime membership.
HMRC has a list of many approved professional organisations. If you can’t find yours on the list, as long as the subscription or membership relates wholly and exclusively to your business, it may still qualify as tax deductible expense.
Any large purchase you make for your business that you’ll use over a long period of time including; computers, furniture and machinery is known as an “asset”. You can claim tax deductions as a “capital allowance.”
For these types of assets you can claim tax relief against the original cost and HMRC has provided guidance on what assets qualify for this tax claim.
You can’t claim tax back on things you lease or items purchased for your personal use. An example would be a camera purchased for your hobby in photography.
For most purchases you make, you can claim an allowance called the Annual Investment Allowance (AIA). This lets you claim the full cost of the asset in the year you buy it.
If you’re a sole trader, you might be using the “cash basis” approach where you report your income and expenses to HMRC each year based on the payments you’ve made (rather than the “accruals basis”). HMRC says if you use this then you don’t have to worry about capital allowances, you can just use the cash basis instead.
If you’re still unsure, we’ve provided further guidance on how to treat the types of assets that you’d purchase for your business.
If you’re self-employed, training for essential skills that you need for your work is also tax deductible. Training to update existing knowledge or skills you already possess would qualify for tax relief.
An example case is a self-employed Fitness Instructor who decides to take a First Aid training course to refresh their skills, keeping up to date with any changes in Health and Safety laws that may have been enforced in the year.
However, training to develop brand new skills, outside of what you need to run your business, are considered more of an “investment” than an expense, and can’t be claimed.
An example case is a Fitness Instructor taking a course in Massage Therapy, with the aim to offer that as a new service to their fitness classes.
This course may not be essential for the fitness instructor to fulfil their current line of work and the course is not updating existing knowledge that they already possess. In this scenario it doesn’t clearly fit the category of a tax deductible training expense.
Although every case is unique, and as long as your training costs can be justified within your line of work then it qualifies for a tax relief.
If you’re still in doubt, it's best to speak to an accountant who can provide expert advice. If you don’t yet have an accountant and would like some guidance, fill out this short form and we can introduce you to our integrated partner services team to see where they can help.
With such busy working lives, it’s easy to forget the odd expense. With Coconut, you’ll find useful tips on what you can and can’t claim, detailing every tax-deductible category.
The app also automatically assigns business categories to your expenses as you spend, ready for your tax return.
The important thing here is to remember that, by missing out on claiming certain expenses, you’re wasting money that could otherwise be used on things such as a new laptop, or that much-needed summer holiday.
To make sure your expense claims are reasonable, and to prevent the risk of being penalised by HMRC, we recommend you speak with an accountant for guidance.
If you don't yet have one, the Coconut team is on hand to help answer any questions and direct you to the right person for advice through our integrated partner services.
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As part of HMRC’s Making Tax Digital, sole traders will soon be required to complete 4 tax submissions per year instead of 1.
Take a look at the latest sole trader tax rates for the 2021/22 as well as our advice on how to prepare for the new tax year.