What Can I Expense?

If you’re a freelancer or sole trader, you’re bound to have overheads: those bills, expenses and purchases that keep your business running. Because these costs are necessary for your work, they can be deducted from your taxable income, meaning that your tax bill will be smaller. Seems straightforward, right?

But knowing exactly what counts as tax-deductible isn’t always easy. Let’s look at the most common types of business expense and how they are treated.

Daily running costs

The rule of thumb is that if something is 100% necessary for conducting your business, it is 100% tax-deductible. If you take a train journey for the sole purpose of meeting clients, the ticket for that journey is an allowable expense. If you have a meal with those clients, that is also allowable. (However, you can’t expense drinks.) And if you take a taxi to and from the station, make sure you get a receipt so you can claim that, too.

In the same way, if you rent an office or co-working space, you can claim 100% of the costs, as well as utilities and any office and computer supplies. Other allowable expenses include website costs, advertising, accountant fees, raw materials (if you’re making and selling a product) and professional insurance and memberships.

However, only those expenses strictly related to business can be claimed. So if you take a train journey to visit friends but fit in a client meeting along the way, you’ll need to take advice on how much of the cost you can actually claim. The same goes if you work from home. You’ll need to work out the right proportion of your home utilities, insurance and rent, or else take the simpler option of the home office allowance.

One-off purchases

Whatever your business, there are certain things you just can’t do without. This could be anything from a desktop computer all the way to specialised tools, machinery or technical equipment. These purchases are also deductible – but here it gets a little more complicated. If you use cash-basis accounting, you can claim them like any other business expense. If you use traditional accounting, then the items you purchase are treated as capital assets.

The definition of a capital asset is a significant purchase that will (1) have a useful life of over a year and (2) mostly or entirely generate value for your business. If you buy a laptop for your family and use it occasionally for client work, that doesn’t count. But if you buy and use that laptop as your work computer – and for a sole trader, that’s a significant purchase – then it is a capital asset, and part of the cost can be deducted from your profits each year.

Claiming the right expenses really can save you money, time and trouble. Our affordable, friendly online accounting service can help. If you’re mystified by expenses, just get in touch for a chat and a free, personalised quote. We look forward to hearing from you!