If you’re spending spare time over the festive season sorting out your expenses, our handy guide will help you get it right. Meaning you can confidently complete your self-assessment return before the January 31 deadline.
As 2018 draws to a close, the deadline for self-assessment returns on January 31 2019 looms large, prompting time-strapped business owners to spend Christmas downtime trying to sort out their expenses nightmare.
Sole traders and freelancers should be spending hard-earned time off at New Year relaxing with family and friends. But lots will instead have to spend hours of confusion rummaging through receipts and a mass of contradicting online information.
If this sounds like you, don’t worry, it’s not too late to get help. Start here with our Oscar Fairchild guide to what is and what isn’t an allowable expense.
Confirm your accounting method before looking at expenses
Before you dig out the shoebox containing that tax year’s worth of receipts, it’s a good idea to confirm the basis on which you’ll work out your income and expenses for your self-assessment tax return.
If 2017-18 was your first year in business as a sole trader, running a small business self-employed, or working as a freelancer, you have to decide if you’re using cash basis accounting or traditional accounting. Simple businesses, not carrying high levels of stock, will more often than not use cash basis, as long as they have a turnover of £150,000 or less a year.
It means you’ll be reporting money when it comes in and out of your business – so in terms of your expenses, you’ll be detailing the day you actually pay for something that is an allowable expense in that tax year. And it also allows you to short-cut some expenses detail by using simplified expenses.
What are simplified expenses?
Simplified expenses are an HMRC tool that allow you to calculate expenses across three areas using their flat rates instead of detailing exact costs, saving recording and calculation time for sole traders. The three types are:
- working from home
- business costs for vehicles
- living in your business premises
All you need to detail is your business miles for vehicles, hours you work at home each month and how many people live at your business premises over the year. HMRC supply the flat rates for your calculations on their website, and you add those totals as part of your tax return.
If you’re not sure whether simplified expenses are right for your business, or if you should claim the actual costs, then Oscar Fairchild can give you the expert advice you need to make the right decision.
What types of self-employed expenses are allowed?
In order to complete your self-assessment return you’ll have added up your turnover (i.e. your invoices paid within the tax year), and now you need to detail the running costs you can deduct so that your taxable profit can be worked out.
For a busy business owner that’s no mean feat, as allowable expenses fall into more than half a dozen categories:
- advertising or marketing
- office costs
- travel costs
- clothing expenses
- business premises costs
- staffing costs
- financial costs
- reselling goods
Kim Redwood-Lee advises business owners and sole traders: “Don’t leave your self-assessment return to the last minute, and certainly don’t try and calculate your allowable expenses yourself if you are at all confused. We can provide the expert help you need to ensure your self-assessment return is accurate and on time.”
Getting into the detail of allowable expenses
Marketing expenses can include website costs, print advertising and mailshots, plus subscriptions to trade journals and professional organisation membership. While office costs cover items you’d use for less than two years such as stationery, as well as rent, rates, power and insurance costs. Office equipment is an allowable expenses if you use cash basis accounting, but a capital allowance if you use traditional accounting.
If you’re not using simplified expenses to calculate your car, van or motorcycle expenses, allowable business expenses are pretty intuitive, including fuel, train, bus, air and taxi fares, plus hotel rooms and meals on overnight business trips. And clothing expenses cover protective clothing and uniforms, as well as costumes for entertainers.
Allowable staff expenses you can claim for include employee and staff salaries as well as their bonuses, pensions and benefits, and also costs of subcontractors and agency fees, and employer’s National Insurance.
If you hire Oscar Fairchild our accountancy fees are allowable business expenses, as are legal and other professional fees such as using surveyors and architects for business reasons.
Allowable financial costs also include professional indemnity insurance premiums – and bank charges and interest, and credit card charges. However, if you’re using cash basis accounting you can only claim up to £500 in interest and bank charges.
Lastly, allowable reselling goods expenses covers goods for resale or raw materials, and also any direct costs from producing goods.
Get expert advice to help you get it right
Whatever problems you’re left with when sorting out your expenses for your self-assessment return, you don’t need to do it on your own – working with Oscar Fairchild’s private client bookkeeping and accountancy service makes perfect sense for business owners, sole traders and freelancers.
About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an Association of Accounting Technicians (AAT) qualified accountancy & bookkeeping practice with offices in The City of London and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses across London, Essex and Hertfordshire.