The word "expenses" became a dirty word during the parliamentary
expenses scandal earlier this summer. But, if you're self-employed, do not put
off claiming deductions, reliefs and allowances for legitimate business expenses
to reduce your tax bill.
HM Revenue & Customs allows you to deduct most of your business expenditure to work out your profits (but you can't deduct any private expenditure). There are also special reliefs for capital expenditure (i.e., one-off expenditure to buy or improve an asset you keep and use for your business). And, you may be able to claim deductions, reliefs and allowances for the current tax year and for the previous six years.
It is vital, however, that you keep impeccable records of all outgoings and income.
Private & Business Expenses
As a recent article in the Financial Times illustrated, an area where the self-employed often come to grief is on the appropriate mixture of private and business expenses.
"If you run your business from home, you can claim a portion of the
expenses. For example, if you have a six-room house and one room is used for
the office, you can claim one-sixth of the rent you are paying," explained
Patricia Mock at Deloitte.
Utility bills can be harder to work out. "On the annual electricity bill you could claim a reasonable portion," says Mock. "You would have to make an estimate of how much you use privately and for business."
She points out that it is important that claims are realistic and appropriate, and can be substantiated.
** Additional Information & Advice **
Always seek advice from an independent financial planner and a solicitor who specialises in tax law before pursuing any tax avoidance scheme. You can be matched with solicitor in your area for free via solicitor matching services, which can also help you to understand the best course of action for your situation and whether you are ready to hire a solicitor.