Business 15 www.aftermarketonline.net FEBRUARY 2025 Counting the cost of going it alone A new year can mean a new direction, such as branching out alone. Kyle Eaton, money.co.uk business insurance expert, gives advice on what expenses you can claim as a sole trader Self-employment can mean avoiding the long commute and enjoying the freedom of being your own boss. Plus, you might have heard about tax-deductible expenses. Business owners might tell you to keep receipts, claim client entertainment costs, or deduct part of your rent or mortgage if you work from home. But let’s separate myth from fact to help you submit your tax return with confidence. Self-employment means you are responsible for your own tax affairs. Each year, you submit a tax return to HMRC detailing your profits and losses. HMRC then calculates the tax you owe. However, working for yourself isn’t free. You will likely incur various costs, such as energy bills and travel expenses. For example, a carpenter may sell a handmade table for £500, but the raw materials and machinery costs are £200, so your profit is actually £300. It wouldn’t be fair to pay tax on profits you have not actually made. So, you can deduct your business costs from your profits, which reduces the tax you owe. To help with this, HMRC lets you enter a sum for expenses on your tax return. You don’t need to provide evidence of your expenses when you submit the return, but you should keep proof in case HMRC asks for it. Many self-employed people work from home, but that does not entirely mean you can claim the full cost of your utility bills, rent or mortgage payments, council tax, and internet. You may be able to claim a proportion of the cost, but you cannot deduct the full cost of each bill in your self-employed tax return as the costs don’t relate solely to your work. You need to estimate a reasonable proportion of each bill that applies to your work. Some bills are easier to split — for example, you can easily track the workrelated calls versus personal calls. Others might be trickier and may require help from an accountant or financial adviser. Other HMRC allowable expenses you can apply for include pretty much any costs you incur to do your work. This may include travel costs (such as train tickets or parking fees), clothing expenses (such as uniforms or personal protective equipment, advertising and marketing (including website costs). You can also claim back the costs of larger items like vehicles. This is either cash basis expenses or capital allowances. Small businesses and the self-employed can use cash basis expenses. It involves reporting your income and expenses for the year using traditional accounting. Larger businesses with higher incomes use capital allowances — but not exclusively. Tracking expenses is easier these days with software and apps, but you can still keep folders of receipts and invoices if you prefer. Either way it’s a good idea to organise your expenses into their respective categories. An individual is considered selfemployed if they run the business and bear responsibility for its success or failure, according to HMRC. If you’re still unsure, consider your work activities. For example, do you carry out your work independently and do you invoice? If yes, then you’re probably selfemployed. You can earn up to £1,000 each tax year from trading without paying any tax on it. If you are only earning up to this allowance, then you cannot claim any business expenses. Types of proof you can use to show your expenses include receipts for goods and stock and bank statements. You can also claim capital expenses to recover the cost of equipment and business vehicles. You can claim expenses for multiple businesses too, but don’t mix up the income and expenses for each business. You can’t claim anything as a business expense if it’s for personal use, such as late bill-payment fees, parking fines and loan/debt repayments — though if it’s business-related debt you can usually claim the interest portion of any loan repayment. Notify HMRC as soon as you decide to switch to self-employment, even if you mix employment and self-employment. This allows HMRC to adjust your tax code accordingly and you will know to expect a tax return.
RkJQdWJsaXNoZXIy MjQ0NzM=