2021 Covid-19 update: Contact us today to learn about HMRC help for self-employed taxpayers such as deferred tax payments and government grants, including the Self Employed Income Support Scheme (SEISS).
There are almost 5 million self-employed people in the UK. It gives you complete control over every aspect of your business and allows your business finances to remain private and not available to be viewed on the public record as they are for a limited company. It can also allow you to have a closer relationship with your customers, where they are seen to deal with you as a person, rather than a faceless company. As your business grows, it can sometimes be advisable to incorporate it into a limited company to protect your assets and we would also point out to you when this could be beneficial.
We service a wide range of clients and their self-employed business accounts, from local shopkeepers and tradesmen to the multi-property rental portfolio.
It’s important to keep on top of your business costs as a self-employed individual and always remember that costs wholly and exclusively incurred by your business can be claimed, even seemingly insignificant expenses such as the fuel cost of driving to a Post Office to send a letter or parcel. More significant but less considered expenses such as a proportion of home utilities expenses can also be claimed if you work from home, clothing costs and membership or any professional bodies or associations providing they relate to your business activity. HMRC do have very precise rules concerning the proportion of what you can claim for certain expenses so you should speak to LR Accounting to ensure you are getting it right.
HMRC expect you to keep accurate records to backup any expense claims you put in, otherwise a claim can be refused, and the easiest and most secure way of doing this is by using cloud-based software such as Xero and QuickBooks. They offer smartphone apps which allow you to take a picture of a receipt or invoice and it automatically uploads it to your accounts. HMRC have declared these electronic/online copies of receipts good enough to substantiate expense claims instead of trying to keep on top of a mountain of paperwork and receipts at home.
What expenses can I claim, being self-employed?
It’s a question we get asked throughout the year. Whilst there is no firm list of what you can claim, common sense should prevail when applying HMRC’s ‘wholly and exclusively’ rule and you should always speak to an accountant if you are unsure. 100% of the cost of a mobile phone or contract can be claimed if it is used wholly and exclusively for your business, rather than having a dual purpose. For example, if your phone bill is £60 and you use it for business 50% of the time, then only £30 can be claimed as an expense. You can also claim the cost of your accountancy fees.
How long do I need to keep records for?
Six years. HMRC can choose to investigate any of the previous six years of tax returns and accounts. There is no harm in keeping records for longer than this.
What is the mileage allowance?
If you use your personal vehicle (car or van) for traveling to a temporary work location, you can claim 45p per mile on the first 10,000 miles, then it’s 25p per mile after 10,000 miles. Lower rates apply for motorcycles. It’s very important to keep an accurate record of all journeys you make in relation to your business as HMRC will expect you to justify whatever you claim, should they choose to look into it.