Many people dream of becoming self employed, being their own boss and being in charge of their day to day working life. Being self employed also gives you more responsibility when it comes to keeping your tax affairs in order.
One of the many benefits of being self employed is that you can use the money in your business to cover your usual day to day expenses such as fuel and phone bills.
If you own a business, you’ll have to spend some money on business-related stuff. Those expenditures can help you pay fewer taxes and keep most of the money you make by claiming them as “business expenses”. Making such a claim allows you to deduct the amount spent on expenses from the total amount you’ve made at the end of the month, thereby paying taxes on the remaining amount. For instance, if you’ve made £20,000 at the end of the month and you spent £5,000 on expenses, you can deduct that 5000 from the 20000 and pay taxes on the remaining £15,000. Given how difficult it is to run a business, you may forget some of the expenses and end up paying more than you should.
Costs you can claim as allowable expenses
Capital allowance: These are costs spent on machinery and other equipment used in the business. You can also claim transportation vessels used for business purposes.
Clothing expenses: These are costs spent on clothing such as uniforms, costumes if your business is for entertainment and safety clothing if your business deals with chemicals or harmful waste.
Office expenses: This is the amount of money you spend on buying stationary or on making business-related phone calls. It only applies to items that you can’t use for more than 2 years. You can also claim business premise expenses for the amount you spend on electricity, rent, and insurance of the building.
Financial expenses: All the amount you spend on paying your employees whether they are subcontractors or permanent employees fall under this category. Examples include basic salaries and bonuses, pensions, national insurance and any amount spent on training the staff. Legal expenses also fall into this category. You can claim any money spent on paying a legal representation whether it’s because of the acquisition of property or because of problems with the law.
Marketing expenses: These are expenses spent on any mode of advertising whether it’s through your website or newspapers. You cannot claim for entertainment costs.
Laundry expenses fall into the “uniform expenses” category. You can use different methods to calculate those expenses. For instance, you can claim £1 per load for washing the uniform at home or 50p per load for the uniforms and your other clothes. You could also claim £1 per load on laundromat for uniforms only or 50p when the load has other clothes. If you use dry cleaning, you can claim the total expenses.
How you can claim back expenses?
Every claim you make has to be supported by documentation proof. This means you have to keep a record of all the expenses for the whole year because you’ll be filing your tax returns once every year.
Staying on top of your tax returns is essential, your tax returns will also be used by a number of banks to assess your affordability if you ever wish to apply for a mortgage. Self employed people applying for a loan will generally need to go through more affordability checks as banks will also assess the overall state of the company.
You’ll not be required to provide the records as you file your returns. Keeping them is still important because it allows you to submit accurate business expenses and can also help you if the relevant authorities ask for them. Sum up the allowed expenses then file them in the “self-assessment tax return” category.
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