There are many benefits to self-employment such as job satisfaction, a good work/life balance, and creative freedom. But the true reality of your business (besides those listed) is your profits.
Profits are important, helping you to fund the growth of your business, and providing you with the money you need to pay your bills and enjoy yourself. They’re also important because you pay your tax bill based on how much profit you make.
You can figure out your taxable profits by deducting allowable expenses, but it can be hard to know what qualifies, especially when it comes to things like travel.
An allowable expense is simply a cost (or expense) you’ve incurred while running your business. These expenses are not taxable, which means you can claim tax relief for them, reducing the amount of tax you’ll pay.
There are lots of things you can claim as an allowable expense – as long as the expenses are exclusively for your business. For example, you can claim expenses for uniforms, but not for your Christmas work party outfit. The most common types of expenses include:
- Property, equipment, and offices: Such as wi-fi, office phone bills, postage, rent, and other additional costs.
- Travel expenses: Including fuel, servicing, and vehicle insurance.
- Clothing: Uniforms and clothing materials used for work, such as protective clothing or safety wear. ‘Regular’ work clothes don’t count, but if, for example, you need a costume for work (e.g. you’re an actor or entertainer) it would count.
- Marketing, subscriptions, and entertainment: This includes costs such as building a website, advertising online and subscriptions to things work-related.
- Training courses: Any training courses that improve your skills are classed as an allowable expense, although they must relate to your existing business. It doesn’t include courses that allow you to start a new business or take your existing one in a new direction.
The short answer is no. You can’t claim any tax relief traveling to or from work as part of your usual commute unless you’re traveling to a temporary place of work.
There are conditions to what qualifies as a ‘temporary’ place of work though – more commonly known as the 24-month rule. This is a specific condition that allows you to claim travel expenses between your home and your clients’ offices, or any other temporary workplace.
Those conditions are:
- You spend more than 40% of your working time at that workplace
- You’re likely to attend the workplace over a period lasting longer than 24 months
If you travel a lot for work but it isn’t part of your normal commute, you can claim tax relief on things such as:
- Any public transport costs
- Hotel accommodation (if you’ve had to stay overnight anywhere for work)
- Food and drink
- Congestion charges and tolls
- Parking fees you incur
- Any business phone calls or printing costs (i.e. to print out your plane tickets)
- In some instances, you can claim relief for business mileage
Everything listed is exclusively for your business – so if, for example, you’re a photographer working on the other side of the country for a couple of days and need to book accommodation for the night, you’ll be able to claim tax relief on the cost. You wouldn’t be able to claim any relief if you booked a couple of nights away as a family holiday.
This means that if you have unclaimed expenses from previous tax years, you might still be able to claim tax relief on them. If a journey is for both business and personal reasons – double-check with your accountant to see if it qualifies.
You can claim for journeys that are outside of what is deemed as ‘ordinary’ commuting. If, however, you need to travel to a temporary workplace – or you’re traveling somewhere else for a meeting – you can claim it as an allowable business expense.
The 24-month rule is there to help self-employed people claim travel expenses on travel outside the normal commute – so make sure you claim expenses for any journeys you qualify for!
If you’re self-employed and use your own vehicle for work purposes then you can either claim the actual cost of running your vehicle, or use ‘simplified expenses’. It’s up to you which one you use (as long as you’re consistent!) so it might be worth working out which method is most tax efficient for your business.
Working out your actual vehicle costs
To calculate your actual vehicle costs you’ll need to record all the expenses which relate to your vehicle, and then work out the proportion which relates to your business. For example, your costs might include:
- Hire charges
- Repairs and servicing
- Vehicle license fees
- Breakdown cover
Using simplified expenses
Rather than working out the actual cost of running your vehicle, you also have the option of using ‘simplified expenses’. With this method you’ll multiply the number of business miles you travel by the flat rate which relates to your type of vehicle.
Just keep in mind that this isn’t an option if you’ve already claimed capital allowances on your vehicle).
You can use simplified expenses for cars (except ones designed for commercial use, for example, black cabs), motorcycles, and goods vehicles such as vans. The flat rate you can claim depends on what type of vehicle you use:
|Flat rate per mile
|Cars / goods vehicles (first 10,000 miles)
|Cars / goods vehicles (after 10,000 miles)
This is where excellent record keeping will help! Log every business journey you take throughout the year, ensuring you don’t include any personal mileage. It’s up to you how you record these, such as with a dedicated mileage tracker tool, or updating a spreadsheet as you go.
Once you calculate your travel expenses, you can add them to any other expenses you’re claiming tax relief for, and include them in your tax return.
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