EXPENSES:

 Overview

If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.

Example:

Your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 - known as your taxable profit.

Allowable expenses do not include money taken from your business to pay for private purchases.

If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.

Costs you can claim as allowable expenses

These include:

You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.

Contact the Self Assessment helpline if you’re not sure whether a business cost is an allowable expense.

Costs you can claim as capital allowances

If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, for example:

  • equipment

  • machinery

  • business vehicles, for example cars, vans, lorries

You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.

If you use cash basis

If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.

If you use something for both business and personal reasons

You can only claim allowable expenses for the business costs.

Example Your mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business.

You can claim for £70 of business expenses.

If you work from home

You may be able to claim a proportion of your costs for things like:

  • heating

  • electricity

  • Council Tax

  • mortgage interest or rent

  • internet and telephone use

You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

Example:

You have 4 rooms in your home, one of which you use only as an office.

Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).

If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).

Simplified expenses

You can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:

  • vehicles

  • working from home

  • living on your business premises

  •   

BENEFITS:

Tax on trivial benefits

You don’t have to pay tax on a benefit for your employee if all of the following apply:

  • it cost you £50 or less to provide

  • it isn’t cash or a cash voucher

  • it isn’t a reward for their work or performance

  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

You have to pay tax on any benefits that don’t meet all these criteria.

If you’re not sure whether a benefit counts as a trivial benefit call the employer helpline.

Salary sacrifice arrangements

If you provide trivial benefits as part of a salary sacrifice arrangement they won’t be exempt. You’ll need to report on form P11D whichever amount is higher:

  • the salary given up

  • how much you paid for the trivial benefits

These rules don’t apply to arrangements made before 6 April 2017 - check when the rules will change.

Directors of ‘close’ companies

You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.

A close company is a limited company that’s run by 5 or fewer shareholders.

What are Trivial Benefits?

What are trivial benefits? An explanation of the staff benefits you can give without incurring tax. From April 2016, legislation was introduced providing clarity as to what small benefits are deemed to be trivial and therefore exempt from tax and reporting obligations.

Conditions to be satisfied

  • If any of the conditions above are not satisfied then the benefit is taxed in the normal way – this is done via a P11D, PSA or taxed through payroll. Please note that if the cost of the benefit exceeds £50, the whole amount will be taxable not just the excess.

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Examples of trivial benefits

Per HMRC’s guidance, examples of trivial benefits are:

  • taking a group of employees out for a meal to celebrate a birthday;

  • buying each employee a Christmas present or birthday present;

  • flowers on the birth of a new baby;

  • a summer garden party for employees.

The limit of £50 applies to each.

Non-taxable benefits

Certain other benefits you provide to your employees are not taxable. This can be a good way to incentivise staff, as well as being tax efficient from an employer’s perspective.

Some of the most common examples are:-

  • Payments for business mileage in an employee’s own car, provided they are within HMRC approved rates (45p per mile for the first 10,000 miles and 25p per mile thereafter). Any excess above these amounts will be taxable

  • Employer payments into a registered pension scheme

  • Medical treatment to help an employee return to work after an absence (or expected absence) of at least 28 days, up to a maximum cost of £500

  • One health screening assessment and one medical check-up per year, but any follow up treatment is taxable

  • Meals provided in a staff canteen and light refreshments at work

  • Parking provided at or near an employee’s place of work

  • Workplace nursery places for the children of employees and childcare vouchers (if entered in the voucher scheme prior to October 2018). For new parents, information on applying for tax-free childcare can be found at gov.uk/get-tax-free-childcare

  • Removal and relocation expenses up to a maximum of £8,000 per move

  • One mobile phone per employee, registered in the employer name

  • Annual social functions for employees provided that, in any one tax year, the total cost does not exceed £150 per head (including VAT)

  • Use of a pool car – this is a vehicle made available for use by more than one employee, with very limited private use, which is not normally kept overnight near the residence of any of the employees

  • Expenses that are paid or reimbursed by employers, so long as they were incurred entirely for business purposes. This includes office equipment bought by an employee for home working however this must be discussed in advance. Any significant private use element should be subject to tax and NIC via the payroll.

  • Additional household expenses incurred whilst your employee is working from home (e.g. electricity, heating or broadband) can be paid at a flat rate of £6 per week from 6 April 2020.