Everything You Need to Know About Self Employed Tax Deductions

One of the big benefits of being self employed is the opportunity to legally pay less tax! Companies are able to pay less tax so retaining more money to invest into their businesses.

Here are several things you need to know about self employed tax deductions

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The Rule of Thumb

Basically HMRC will allow any allowable expenses to be deducted from a business’ profit, therefore reducing the amount liable to tax. The basic idea is any expense used for the business, its running costs for instance, can be deducted. Also those one off costs used to improve the business or to make it more efficient can also qualify for a deduction.

What is an allowable self employed tax deduction?

There is a list of those costs that are eligible for a self employed tax deduction. These include accountancy costs, legal costs, utility bills, rent, uniforms, staff costs and recruitment, training, web and offline advertising, car hire, postage, stationary. The everyday stuff.

You can also claim for unrecoverable debts and the costs of producing the product you are selling, such as raw materials or basic equipment

Don’t forget Capital expenditure too?

Any one off cost can used as a self employed tax deduction. This could be plant or machinery, fixture and fittings, technology and buying a car or van. Hiring does not qualify though this would qualify as an allowance.

Companies can go back over 4 years to claim too, meaning a van bought in 2009 could be claimed in 2013 as an allowable capital expenditure.

How about motoring costs?

You can claim motoring costs as a self employed tax deduction. The cost of purchase is capital expenditure and the cost of hiring is an allowance. Petrol used for business can also be claimed back by applying a cost per mile calculation.

Petrol used for private use has to be identified and accounted for. It is only possible to deduct the costs of business motoring costs.

Any other tax benefits of being self employed?

A great benefit for self employed businesses is the opportunity to claim tax relief on charitable donations and pension contributions. A higher tax payer may claim 40% of his salary a year as a pension contribution and this can be deducted from annual profits.

Clever businessman enjoy a double whammy where they then invest the pension contributions into a Self Invested Personal Pension scheme that they can then use to invest back in the business by way of a property or business asset. Also a charitable donation to a local organisation is tax free. The fact is that this payment may in fact be a huge benefit to the company by way of local press profile. it is almost as if the government is paying towards the improvement in a businesses profile locally.

HMRC is very supportive of self employed businesses and supports their growth and success through reducing their tax liability . Everyone seems to win. The business has more cash to use to build the business and the government is able to support a business creating jobs .

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