Self-employed expenses you can claim - Which? - Which.co.uk

Summary

How do self-employed expenses work? If you're self-employed you'll be charged tax based on the amount of profit you've made in a tax year, but there are a number of expenses you can claim that will lower your tax bill. HMRC allows you to deduct the costs of certain purchases that are necessary to run your business. These costs can be deducted from your profit and, by doing so, will reduce the amount of tax you'll owe. In general, unless something you buy for your business is a capital asset - such as a computer or machinery (which you claim for under different rules) - you can deduct its full cost when working out your taxable profits. You get immediate tax relief for the full amount. Get a head start on your 2021-22 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

What self-employed expenses can I claim to reduce tax?

How do self-employed expenses work? If you're self-employed you'll be charged tax based on the amount of profit you've made in a tax year, but there are a number of expenses you can claim that will lower your tax bill. HMRC allows you to deduct the costs of certain purchases that are necessary to run your business. These costs can be deducted from your profit and, by doing so, will reduce the amount of tax you'll owe. In general, unless something you buy for your business is a capital asset - such as a computer or machinery (which you claim for under different rules) - you can deduct its full cost when working out your taxable profits. You get immediate tax relief for the full amount. Get a head start on your 2021-22 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

What self-employed expenses can I claim to reduce tax?

Knowing what you're allowed to claim can be complicated - especially as self-employed work can vary significantly from person to person.

See our lists below to work out your tax-allowable expenses.

Self-employed expenses if you use business premises

You can claim:

Heating

Lighting

Cleaning

Water rates

Rent

Business rates

General maintenance

You cannot claim:

The initial cost of buildings, alterations and improvements (such as extensions) - although such work may qualify for annual investment allowance or capital allowances.

Self-employed expenses if you work from home

You can claim a proportion of the costs for:

Lighting

Heating

Cleaning

Insurance

Mortgage interest

Council tax

Water rates

General maintenance

But you won't be able to write off all of your bills. The figures you submit should be based upon the floor area or the number of rooms used for business, and the proportion of time the space is used for working.

The graphic below explains how this works, with an example.

Bear in mind that if you start working from home, you might need to change your home insurance cover. Our Which? expert explains why your job can affect your home insurance quote.

If you work for 25 hours or more a month from home, you may be able to use HMRC's simplified expenses system.

Claiming travel and accommodation expenses

You can claim:

Travel and accommodation on business trips and between different places of work.

Running costs of a car or other vehicle, including petrol, car tax, insurance, repairs and servicing.

If you use the car privately, you can only claim a proportion of the costs equal to how much the car is used for business purposes. This is usually the ratio of your business mileage to your total mileage. It's worth keeping a log of business mileage for a representative period, as well as all bills.

You can't claim:

Travel between home and workplace.

The cost of buying a vehicle (although it may qualify for capital allowances).

Meals, except a reasonable amount for breakfast and evening meals on overnight trips.

Claiming expenses on salaries and benefits

You can claim:

Employees' wages and redundancy payments

Employer's National Insurance

Insurance and pension benefits for employees

Any employee childcare provision you make

The cost of training employees.

You can't claim:

Your own wages, salary, or other money drawn from the business

Your own National Insurance contributions and income tax

Your own pension costs

Your own life insurance.

How does HMRC decide if I'm self-employed?

HMRC distinguishes between people who work under a 'contract of service' - those employed by a company - and the self-employed, who work under a 'contract for services.'

It uses some standard questions to decide which you are. If you can answer 'Yes' to all or most of the following, you will usually be accepted as being self-employed:

Can you hire someone to do the work or engage helpers at your own expense?

Do you risk your own money?

Do you provide the main items of equipment you need to do your job, not just the small tools that many employees provide for themselves?

Do you agree to do a job for a fixed price, regardless of how long the job may take?

Can you decide what work to do, how and when to do the work, and where to provide the services?

Do you regularly work for a number of different people?

Do you have to correct unsatisfactory work in your own time and at your own expense?

Video: how do I pay tax as a self-employed person?

Our short video below explains some of the expenses you can claim if you're self-employed.

Submit your 2021-22 tax return with Which?

Get a head start on your 2020-21 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

Self-employed expenses you can claim - Which? - Which.co.uk
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