If you’re running a business, you understand that at the end of the year your taxes will be calculated on your net profit – meaning, your total income minus your total expenses. When you’re self-employed, it works in a similar way; you are, in fact, running a one-man (or one-woman) business, providing work for yourself. You don’t need to pay taxes on your total income at the end of the year – you pay only on your profit, meaning total income minus expenses. Many self-employed individuals, however, don’t quite understand what is meant by expenses – the government has some strict rules on what can be deducted, and what can’t. Here’s an overview of expenses you can deduct if you are self-employed.

Allowable expenses

Allowable expenses are expenses which naturally occur whilst you are conducting those activities that are required by the nature of your business. Such expenses include:

• Office costs, such as stationery, writing tools, ink, stamps
• Travelling costs, such as fuel, repairs, and so on
• Clothing expenses
• Staff costs
• Costs of raw materials or stock
• Financial costs, such as bank charges
• Costs of a business office, such as energy, utilities, and so on
• Advertising and marketing

Capital allowances

Some items can also be deducted – not as allowable expenses, but as capital allowances. Such expenses include:

• Equipment
• Machinery
• Business vehicles

Bear in mind, however, that these expenses have different accounting classifications, as attested to by experienced accountants in central London.

Rents and rates

If you rent your business premises, the rent can also be deducted as an allowable expense. You can also include insurance premiums, and business and water rates. If you use part of your home as an office, you can deduct a certain amount.

Maintenance yes, building no

There are some specific regulations that are drawn up when it comes to your business premises. For example, you can’t deduct costs spent on constructing or building an office – however, it’s possible to deduct certain amounts for repairs and maintenance, claiming them as valid expenses. Again, certain accounting practices apply.

Included also in allowable expenses are car and vehicle costs – unless they are used for private purposes and not for business or work-related activities. Clothing expenses are also allowed, for example: uniforms, protective clothing for work, or certain costumes if you’re in the entertainment industry. Advertising is also allowed, as are expenses for certain subscriptions – for example, a magazine on the latest trade shows, or professional photography equipment … all within reason, of course. It needs to relate directly to the business you are in. Remember to stay informed and understand that necessary expenses are deductable – it will save you a lot of money at the end of the year.