Going freelance can be a pretty bold move to take, and at times things can get a bit rocky. This is why any support you can get is always going to come in handy. Luckily, HMRC allows freelancers to claim expenses against their taxable income, which with the self-employed bringing down the unemployment rate, is obviously a very good thing.
So, how do you go about it and what is an acceptable expense?
This is pretty straightforward. As a freelance you have to complete a Self-Assessment every year to keep the tax man in the loop about all you financial goings-on and so that you’re paying your income tax.
Part of this involves submitting how much you’ve earnt over the financial years so that your profits can be taxed. Now, obviously, not every single payment you’ve got is going to count as a profit. If you’ve taken £30,000 over the year, but paid out £15,000 in business expenses, then your profit is only £15k. This is why making sure you claim for everything is so important.
All you need to do is fill out the relevant boxes on your self-employment form by tallying up your business costs from the year. This goes off with your Self-Assessment and, as long as they’re approved, your expenses will be deducted from your income to get to your profit amount.
What you need
Of course, HMRC isn’t just going to accept your word for it. They need proof of your costs, so that means keeping track of everything you might need such as receipts, invoices and tickets. It’s always best to be safe rather than sorry, so if you’re not sure if you should keep something then just keep it. Always err on the side of safety.
What can you claim?
Essentially anything that is a cost that is wholly for your business is claimable, but it’s not entirely that simple. We have an expenses guide that goes through a lot of them, but you should always be checking with an accountant for advice.
Here are a few of the most common expenses that you can claim for, though.
Freelancers often move about a lot for work and meetings, so it’s good that you can claim for some of that. It does depend on how you travel, though.
If you’re going by car or van, you can claim 45p per mile for the first 10,000 miles with it going down to 25 per after that. On a motorbike, it’s a straight 24p no matter how many miles, and on a bicycle, it’s 20p. Make sure you’re keeping a detailed mileage log as evidence for your travel.
Regarding costs for tickets on things like trains or planes, these are acceptable too. Obviously, make sure you keep your receipt as proof. As a sidenote, you don’t always have to take the cheapest option. For example, if you’re going from Glasgow to London, you can still claim a plane ticket even if it’s more expensive. Just keep in mind that you need to smart. Common sense is your friend, so travelling in business class isn’t going to fly with HMRC.
A lot of freelancers will also work from home, and this incurs its own costs which you’re entitled to claim for. What you’ll be glad to know is that you can even add some of your rent into your expenses.
This is all worked out on use and space. Bear in mind that to claim as much as possible the room has to be solely used for work, if it has two uses then you’ll have to halve what you claim.
For example, if you had a 100m² flat you paid £1000 a month for, and your office was 10m², you’d be able to claim for £100. As mentioned before, if you use the room for something else it would go down to £50. Obviously, if you’re living in a small place, you won’t be going after too much money, but it some situations you could be getting some substantial claims in.
No matter what field you’re in, chances are you’ll need supplies. This includes all the things you need to keep your business running smoothly. Pens, paper, stationery and the like can all be claimed for. At first, these items don’t rack up a huge cost, but over time the money does build up.
Tally everything up at the end of the year, and you’ll be surprised just how much basic supplies end up costing you. So, keep hold of those receipts and take advantage of what HMRC allows.