A beginner’s guide to allowable expenses

If you have started running a business, you have probably come across the term ‘HMRC’ – the body that collects tax and tells you how much you can claim in expenses. HMRC stipulates that expenses must be wholly and exclusively spent on the business.

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What does this mean? If you pay for broadband every month and spend six hours a day using it for business and three hours for socialising, for example, you can’t charge the whole lot to your business. You can only charge the amount that is exclusively spent on the business, which in this example is two-thirds of the monthly cost.

Capital and revenue expenses

There are two types of expenses that a business can charge. Capital expenses are business assets such as computers and office furniture, which are dealt with in a different way to revenue expenses. Revenue expenses are items such as rent, stationery, and travel in connection with the business.

Which revenue expenses can you claim for?

All the ongoing expenses that are directly used to keep the business running can be claimed and set off against your turnover before you calculate your taxable profit. This includes rent, electricity and gas, insurance and maintenance. HMRC has a full online list of the allowable expenses that you can claim for.

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The list is sorted into various topics, such as car, van and travel expenses. It has to be said that some of the advice may not be as straightforward as it appears initially and an accountant may need to advise you how to claim your expenses. Self-employed people in Gloucestershire have access to accountants in Cheltenham – such as Randall & Payne Cheltenham Accountants – that can give easy-to-follow advice and answer any questions.

Simplified expenses

Sole traders can use HMRC simplified expenses. These are flat rate allowances that mean you don’t have to add up all your separate spending. Ironically, you may find that your accountant needs to advise whether you will be better off with the flat rate or with a detailed expense allowance claim.

Be aware that if your expenses are way out of line with most people in your industry, HMRC may take a closer look at them, so make sure that everything you claim is either flat rate or backed up by receipts and documentation.

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