What business expenses are allowable?
You may wish to claim business expenses. In this section, we discuss which business expenses are allowable.
All revenue (trading) expenses must have been incurred “wholly and exclusively” for the purposes of the business to be allowable for tax purposes. This means that the costs must be incurred while actually performing the business or trying to attract more business. There are special rules for pre-trade expenses.
A capital expense is usually a larger item of expenditure incurred to purchase an asset that you would expect to use in the business for a reasonable period of time and which you would expect to have an enduring benefit for the business. There is no fixed time set out in law, but you would expect that asset to last for longer than a year, for example a computer or office shelving. A revenue expense is something that lasts for a shorter period of time and is often used up by your actions. For example, ink cartridges for your printer or stock that you sell are two examples of revenue expenses. Most day-to-day expenses will be revenue expenses. Your accounts include all revenue expenses relating to the period covered by the accounts (the accounting period). Capital expenditure may qualify for capital allowances.
Unfortunately not. Some expenses are not allowable for tax purposes. These may be called disallowable expenses or expenses to be added back. As well as this, there may be some expenses in your accounts that are partly for business purposes and partly for personal purposes. No expenses for personal purposes will ever be allowable.
To exclude the expenses that are not allowable you might need to make some adjustments to the profit shown in your accounts. See ‘how do I work out my taxable profits’ for more information.
HMRC's helpsheet HS222 'How to calculate your taxable profits' contains a useful table of the most common allowable and disallowable expenses.
We provide some additional information on the page ‘further comments on business expenses’.
You will generally need to tell HMRC about your allowable expenses when you complete your tax return. Whether you have to tell them just your total expenses or list your actual expenses depends on your turnover and other circumstances.
You can use the short return if your turnover is under the threshold of £82,000 (for 2015/16) and provided certain other circumstances do not apply. Have a look at the HMRC guidance on the GOV.UK website for the full list. Otherwise you will need to complete the self-employment full version supplementary pages SA103F.
If your annual turnover in your business is less than £82,000 (for 2015/16) you need only enter the total figure of your business expenses in the self-employment short version Supplementary Pages SA103S. However make sure you keep details of the expenses you claim in case HMRC make enquiries into your tax return.
If your annual turnover in your business is less than £82,000 (for 2015/16), but because of your circumstances you still have to complete the full self-employment pages, you need only enter the total figure of your business expenses. However make sure you keep details of the expenses you claim in case HMRC make enquiries into your tax return.
If your annual turnover is more than £82,000 (for 2015/16) you will need to show your actual expenses in the self-employment (full) pages.
Looking at SEF2 of the self employed pages for 2015/16 you can see that there are two columns for each expense – the left hand column is where you will include the total expenses or costs and the right hand column is for any amounts that are not allowed but are included in the total in the left hand column. You can find the form on the GOV.UK website.
The disallowable expenses should be totalled.
There is useful commentary on which expenses are allowable and which are disallowable on pages 5 and 6 of the self assessment self-employed pages notes for 2015/16.
Some further information is available on the page ‘further comments on business expenses’.
You can claim a proportion of your household expenses such as heat and light, council tax, water rates, rent or mortgage interest for example. So if your house has four rooms, excluding kitchen and bathroom, and you use one room partly for business purposes, you could claim up to one quarter of those costs.
There are several exampes of how home running costs may be apportioned on a reasonable basis in HMRC's Business Income Manual.
If you own the house you are working from, you do need to be a bit careful. Normally when you sell your home, there is no tax to pay on any profit that arises. If you have used any part of your house exclusively for business purposes, then a proportion of any profit would become liable to tax. In the normal situation, rooms are not used exclusively for business purposes so this is not a problem. It does mean, though, that you should be careful to restrict the claims for household expenses you make.
There is more information on the page ‘further comments on business expenses’.
Yes, there is. You can use simplified expenses which allow you to claim household expenses (and car expenses) using flat rate allowances to save you work. You can only claim flat rate expenses for working from home if you work there for at least 25 hours per month.
|Hours of business use per month||2016 to 2017 flat rate per month|
|25 to 50||£10*|
|51 to 100||£18*|
|101 and more||£26*|
* This is instead of actual expenses, for example business proportion of utilities, repairs, mortgage or rent. These flat rate allowances are relatively modest amounts and so may result in a smaller claim than if you claim an appropriate proportion of your actual costs, but they are simpler to calculate and would not be subject to scrutiny by HMRC in the event of an enquiry provided they have been calculated correctly.
Similarly to home expenses, you can either claim a proportion of your actual motoring expenses or you can charge flat rate expenses as follows:
|Vehicle||2016 to 2017 flat rate per mile with simplified expenses||What you can claim if you don't use simplified expenses|
|Cars and goods vehicles
first 10,000 miles
|45p*||Capital allowances and running costs (for cars) or
purchase costs (goods vehicles)
|Cars and goods vehicles
after 10,000 miles
|25p*||Capital allowances and running costs (for cars) or
purchase costs (goods vehicles)
|Motorcycles||24p*||Full purchase cost and running costs|
* These rates were previously available to businesses with income up to the VAT threshold and are now available to all businesses.
You will need to keep a record of the number of miles you travelled for business but you will not need to keep track of your vehicle running and repair costs.
You can still claim all other travel expenses (for example train journeys) in the usual way.
You do not have to use flat rates for all your vehicles. However, once you have chosen to use them for vehicle you must stick with this as long as you use that vehicle for your business.
If you have already claimed capital allowances for a vehicle you cannot use the mileage rate for it.