TAX SAVINGS TO MAKE IF YOU ARE SELF EMPLOYED
When you become self employed, you take on the responsibility of ensuring you submit your tax return every year to HMRC in the UK, including declaring your expenses. Many freelancers don’t know the rules of what expenses to claim for, and are missing out on huge savings each year! This article is brought to you by accountant, Emily Gough, who has lots of tips to help freelancers and other self employed with their finances.
The world of freelancing and self-employment can be super intimidating; especially when you’ve transitioned from being employed; one payslip at the end of each month showing the tax you’ve already paid and what you’re left with – easy!
But, navigating self-employed life doesn’t need to be complicated, you just need to make sure you’re reporting the right income & claiming the right expenses. As an accountant, I frequently see confused freelancers reporting incorrect figures for 2 reasons;
Not knowing what counts as a business expense and what doesn’t.
Fear of HMRC banging on their door to take them to prison for claiming coffee & a croissant as a business expense (FYI – this is definitely allowable when on a business trip, training day or client meeting).
There are a few key allowable expenses that all self employed people should be considering when completing their annual tax return, some you might not even realise you can claim.
Firstly, working from home! There are 2 methods in which you can claim expenses for home working, depending on which works best for you. The simplified method is a flat rate depending on the hours you work each month (this requires you work a minimum of 25 hours a month from home). Alternatively you can use a reasonable method of dividing full costs (such as by the number of rooms used for business vs rooms in the house) and the costs you can claim include heating, electricity, council tax, internet and phone line costs.
Secondly, car and travel expenses. This again has a simplified method you can use for mileage at a rate of 45p per mile up to 10,000 miles & 25p above 10,000 miles. Alternatively you can claim for fuel itself along with insurance, repairs, servicing, parking, breakdown cover along with other travel costs such as train tickets, taxis, hotel rooms and meals during overnight business trips.
In addition to these expenses it’s worth remembering that items with mixed usage (such as your mobile phone) can be apportioned. For example, your mobile phone is used for 50% business use and 50% personal use and costs £100 a month - £50 per month can be included on your tax return as an allowable expense.
Finally, the golden rule; it doesn’t necessarily matter what you’re claiming as a business expense as long as it satisfies the condition that it is ‘wholly & exclusively’ for the purposes of trade (your business).
Writer: Emily Gough
If you’re self employed and want to speak to accountant about your finances, don’t hesitate to get in touch with Emily at @_beyondbooksuk on Instagram or @emilygdoesfinance on TikTok!