Stay on Top of your Expenses when Starting your Business

Untitled designWhen you’re starting your own business, there’s a great deal to learn.  Keeping your books and records in order is a crucial part of this – as is making sure you don’t pay more tax than you need to!

Emily Coltman ACA, Chief Accountant to FreeAgent – who provide an award-winning online accounting system for small businesses – highlights five costs that you might not realise that you can (or sometimes can’t!) put into your business accounts and claim tax relief on them.

Did you know…

Pre-trading expenses

If you incurred costs before you begin to trade – for example you buy your business cards and set up your website before you make your first sale – then you can still claim tax relief on those costs. However, in order to do so, you must satisfy both of these conditions:

  • You must have incurred the costs seven years or less before you begin to trade
  • The cost must be something that you would have been able to claim tax relief on if you’d incurred it after you began to trade.  That rules out costs such as taking a potential customer out for a meal.

Equipment you already own

Do you already have a computer that you’re going to start using in your self-employed business?

The good news is that you can claim tax relief on some of the value of that computer.

You need to work out what the computer’s market value is at the time you start using it in your business (for example, by checking eBay for similar items), and you can only include the proportion of the market value that you’re actually going to use for your business.

So, if you’re going to allow your children to play computer games on it 20% of the time and the other 80% of the computer’s use will be for business, you’d put in 80% of the market value.

Travel in your own car

If you’re self-employed you can use one of two methods to claim the cost of business journeys in your own car.

You can either claim tax relief per business mile travelled, or you can work out the business percentage use of the car and claim that amount of the total running costs.

Food and drink

This is an example of a cost you may think you can claim – but almost certainly can’t!

HMRC are very strict on this.  They say that everyone must eat to live, and therefore, as a self-employed person, you can’t claim the cost of food and drink when you’re working, unless you’re on a journey for business and:

  • your business is itinerant by nature, for example you’re a self-employed delivery driver, or
  • you’re away from home overnight, or
  • the journey is outside your normal pattern of work.

What constitutes an “itinerant” business is the subject of debate amongst accountants.  Some say that most self-employed businesses where the owner travels to visit clients are itinerant.  Others take a harder view and say that these are not itinerant businesses.  If in doubt – speak to your own accountant, or else include the cost and be prepared to argue your case with a visiting inspector from HMRC.

Business use of home

If you’re self-employed and work at home, then you can claim either a flat rate allowance, or a proportion of the actual costs you spend running your home, such as rent, council tax, light and heat, as an expense of your business.

You can find out more about how to do this in our recent article about claiming business use of home expenses here.

These are five of the most common business expenses but there are countless others. If you’re unsure about any of your expenses, it’s a good idea to speak to your accountant about your business’s specific costs and what you might be able to claim tax relief on.

Emily Coltman ACA is Chief Accountant to FreeAgent who provide an award-winning online accounting system designed to meet the needs of small businesses. Try it for free at www.freeagent.com

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