The self-employed club can seem like something of an exclusive place sometimes, particularly when it comes down to business expenses. How often have you heard someone who runs their own business say, “Oh, we’ll just put this through the company,” or “My accountant confirmed I can claim that as a taxable expense” with all the smug self-confidence of someone who’s joined the club, learned the language and is now cashing in?
Get professional assistance
The first thing to understand is that while there are some basic tips that are simple to follow, the devil is in the detail, so there is no substitute for specialist advice. Speak to your accountant, and if you are a contractor or launching a new start-up, it is well worth considering working through an umbrella company that deals with all aspects of contractor pay and takes the hassle off your plate entirely.
How can you save money?
Your business pays tax on the revenue that it generates, so when you claim an expense as a business cost, this amount is removed, meaning some quite significant savings over the course of a year. If you operate your business in the traditional way, renting premises such as office space or a workshop, business expenses are clearly delineated, and it is simply a case of keeping track of your expenses, and your accountant will do the rest.
However, many small business owners operate from home, and this is where things can start to get a little more complex. Formal guidance is available on the government website, but let’s take a look at the key points.
Claiming home expenses
If you work from home, you are allowed to claim a proportion of your rent, mortgage and utility bills by charging them through the company, but this is by no means a free for all, and there are certain limitations.
What you can claim is based on the space within the home that is actually dedicated to your business. For example, if you have a home office that takes up 10 per cent of the home, and you use this half for business purposes and half for domestic purposes, then you can claim 5 per cent of your rent or mortgage.
The same applies to utility bills, phone, council tax and so on. Calculating how much of these are used for the business can become complicated, which is why some people opt to have separate phone and web connections for the business.
The other big issue that always raises questions is car and travel expenses. If you lease a vehicle through the business, this cost is tax deductible. The rules for purchasing a car or van are a little more convoluted – you can claim the purchase price as a capital allowance, and might also be able to claim depreciation, depending on a number of factors.
If you use your privately owned vehicle for business purposes, you can claim a set amount per mile. Put simply, this equates to 45p per mile for the first 10,000 miles, and you can claim 25p per mile thereafter, but there are different ways of calculating and claiming, so it is well worth sitting down with your accountant to decide what works best for you.