If you are self-employed or have a source of income outside your regular employment, you will likely need to complete a self-assessment tax return. The process can be complex, but there are numerous ways to reduce your tax liability. This article will outline various allowances, deductions, and reliefs available to minimise your tax burden, helping you make the most of your self-assessment tax return.

Personal Allowance

Every individual in the UK is entitled to a personal allowance, which is the income they can earn before paying any income tax. For the tax year 2023/2024, the personal allowance is £12,570, which typically increases each year. This allowance applies to employed and self-employed individuals alike.

Trading Allowance

Self-employed individuals can benefit from the £1,000 trading allowance, which can be used to offset income from casual services or the sale of goods. This allowance can be claimed in addition to the personal allowance. If your trading income is less than £1,000, you will not need to report it or pay tax on it.

Property Allowance

Like the trading allowance, the property allowance allows you to earn up to £1,000 in rental income tax-free. This allowance applies to individuals renting a room in their homes or earning income from other property-related sources.

Pension Contributions

Contributing to a personal or workplace pension can provide tax relief, as the government adds the tax you would have paid on your contribution to your pension pot. Your pension scheme must be registered with HMRC, and the pension provider must invest your pension pot in accordance with HMRC’s rules to claim tax relief. Otherwise, you’ll have to pay tax on your contributions.

The relief applies to contributions up to 100% of your annual earnings or £60,000, whichever is lower. Additional tax relief can be claimed through your self-assessment tax return for higher-rate taxpayers.

Gift Aid Donations

Donating to charities through Gift Aid allows you to claim back tax on your donations. Charities claim basic rate tax on your donations. This means that charities or community amateur sports clubs (CASCs) can claim 25p for every £1 donated by you without costing you anything extra. Higher and additional rate taxpayers can claim the difference between the rate they pay and the basic rate on their self-assessment tax return.

You can also donate to a charity (but not a community amateur sports club) straight from your wages or pension, before tax deduction, if your personal pension provider, company or employer runs a Payroll Giving scheme. The tax relief you get depends on the tax rate you pay. To donate £1, you pay:

• 80p if you’re a basic rate taxpayer
• 60p if you’re a higher-rate taxpayer
• 55p if you’re an additional rate taxpayer

Research and Development (R&D) Tax Relief

R&D tax relief is an incentive for businesses to invest in creating innovative processes and products. Despite over 50,000 claims being made each year, more businesses could still benefit from using their full tax entitlement to support their R&D projects. To qualify for R&D tax credits, a UK limited company must have completed qualifying R&D activities and spent money on an eligible project. R&D relief does not have to be successful to qualify; work undertaken for a client may also be included. Depending on the business size, different R&D tax credit schemes are available, and the amount of relief received depends on various factors, such as R&D spend and qualifying expenditure. You should seek professional advice before calculating a claim, as various expenditures can be covered, including employment, subcontracted R&D, externally provided workers, consumable items, and software.

Loss Relief

If your self-employed business makes a loss, you can claim loss relief against your other income, including employment income or previous years’ profits. This can effectively minimise your tax bill in a year when your business is struggling.

Married Couple’s Allowance (MCA)

The Married Couple’s Allowance (MCA) is a tax allowance available to married couples or those in a civil partnership where at least one partner was born before April 6, 1935. The MCA can reduce your tax bill by £401 and £1037.50 per year. The allowance is designed to help such couples reduce their income tax bill.

The MCA provides tax relief on a portion of the couple’s income, reducing the amount of income tax they owe. The allowance amount depends on the couple’s income and is calculated as a percentage of the lower-earning partner’s income.

To be eligible for the MCA, both partners must be living together, and at least one must be eligible to receive the allowance based on their age. The allowance is only available to couples with at least one partner born before April 6, 1935.

It’s also worth noting that the MCA is different from the Marriage Allowance, which is a tax break available to married or civil-partnered couples where one partner earns less than the personal allowance (currently £12,570 in the 2022/23 tax year), and the other partner is a basic rate taxpayer. In this case, the partner who earns less can transfer some of their unused personal allowances to the other partner, reducing their tax bill by up to £250 per year.

Marriage Allowance

The Marriage Allowance is a tax benefit in the UK that allows couples to transfer a portion of their personal allowance (the amount of income you can earn tax-free each year) between them to reduce their overall tax bill.

To be eligible for the Marriage Allowance, you need to meet the following criteria:

• You must be in a civil partnership or married
• One of you needs to be a non-taxpayer (earning less than the personal allowance)
• The other needs to be a basic-rate taxpayer (earning between the basic-rate threshold and the higher-rate threshold)

If you meet these criteria, the non-taxpayer can transfer up to 10% of their personal allowance to their spouse or civil partner. In the current tax year (2023/24), the personal allowance is £12,570, so this means that up to £1,257 of the personal allowance can be transferred.

This transfer reduces the tax bill of the basic-rate taxpayer by up to £251 (20% of the amount transferred or 20% of £1257). Note that the non-taxpayer doesn’t lose any of their personal allowances by transferring it – they simply don’t need to use it all to give some to their partner.

It’s worth noting that the Marriage Allowance can only be claimed by one partner in a couple, and it’s not available to couples where both partners are higher-rate or additional-rate taxpayers.

Capital Allowances

Capital allowances, also known as plant and machinery allowances, are a type of tax relief available to businesses that allow them to claim tax deductions on qualifying capital expenditures. In simple terms, capital expenditure refers to the money a business spends on buying or improving assets that it uses to generate income, such as machinery, equipment, vehicles, and buildings. Capital allowances are a way for businesses to reduce their tax liability by deducting the cost of these assets from their taxable profits.

There are various types of capital allowances, and the amount you can claim depends on the type of capital allowance you use. The capital allowances (also known as plant and machinery allowance) you can claim are:

Annual Investment Allowance (AIA)

The AIA allows businesses to claim 100% tax relief on qualifying capital spending up to a set limit. This relief can be used for purchases such as machinery, equipment, and commercial vehicles. The AIA amount has changed many times since 2008, so it is important to check the relief available for the tax year you made the purchase to claim accordingly. For the tax year 2021/2022, the AIA limit is £1 million.

100% First-Year Allowances

The 100% First-Year Allowance (FYA) is a type of capital allowance that allows businesses to claim a tax deduction on the full cost of qualifying assets in the year they are purchased. This includes certain types of energy-efficient plants and machinery, as well as electric cars and vans.

Super-Deduction

The Super-Deduction is a temporary capital allowance introduced by the UK government in March 2021 to encourage investment in new plants and machinery. It allows businesses to claim a tax deduction of 130% on qualifying capital expenditure, which means that for every £1 spent on qualifying assets, businesses can reduce their taxable profits by £1.30. This allowance is available until March 2023.

50% Special Rate First-Year Allowance

The 50% Special Rate First-Year Allowance (SRFYA) is a type of capital allowance that allows businesses to claim a tax deduction on the cost of certain types of assets that do not qualify for the AIA or 100% FYA. This includes assets such as integral features of buildings, thermal insulation, and certain types of cars with low CO2 emissions.

Writing Down Allowances (WDA)

Writing Down Allowances (WDA) is a type of capital allowance that allows businesses to claim tax deductions on the cost of qualifying assets over several years. The WDA is calculated as a percentage of the remaining value of the asset each year, and the percentage varies depending on the type of asset. For example, the WDA for plant and machinery is currently set at 18%.

In summary, capital allowances are a valuable tax relief available to businesses that can help to reduce their tax liability by claiming tax deductions on qualifying capital expenditure. The different types of allowances available provide different levels of relief and eligibility criteria, so businesses need to seek professional advice to ensure they are taking full advantage of the capital allowances available to them.

Other Allowable Expenses

There are various other business running costs that you can subtract from your taxable profit so long as they’re allowable expenses. Money taken from business to pay for private purchases are not included in allowable expenses. Some of the allowable expenses are listed below:

Office, Property and Equipment

Allowable office expenses typically include:

• Stationery: Office supplies such as paper, pens, envelopes, printer ink, and other items necessary for the day-to-day running of the business can be claimed as allowable expenses.
• Rents: If you rent an office or workspace for your business, the rent paid for that space can be claimed as an allowable expense. This applies to commercial properties as well as the part of your home that is used exclusively for business purposes.
• Rates: Business rates are taxes paid on non-domestic properties like offices and commercial buildings. You can claim these as an allowable expense. If you work from home, you can claim a portion of your council tax as a business expense, depending on the proportion of your home used for work.
• Power: The cost of electricity, gas, and other utilities required to run your business can be claimed as allowable expenses. If you work from home, you can claim a portion of these costs based on the percentage of your home used for business purposes.
• Insurance costs: Business insurance premiums, such as professional indemnity or public liability insurance, can be claimed as allowable expenses. If you work from home and have specific insurance coverage for your business activities, a portion of your home insurance premium may also be claimable.
• Business premises: The costs associated with maintaining and repairing your business premises can be claimed as allowable expenses. This includes cleaning, maintenance, and repairs. If you work from home, you can claim a portion of these costs based on the percentage of your home used for business purposes.

Home Office Expenses

If you work from home, you can claim expenses for the portion of your home used for business purposes. These expenses include utilities, rent, mortgage interest, and property repairs.

Travel Costs

Car, van and travel expenses are costs incurred by self-employed individuals in the UK while using vehicles or travelling for business purposes. These expenses can be claimed to reduce taxable income. Here’s an overview of the allowable and non-allowable expenses under this category:

Allowable expenses:

• Vehicle insurance: You can claim the insurance cost for vehicles used for business purposes.
• Repairs and servicing: Expenses related to maintaining and repairing vehicles used for business purposes are claimable.
• Fuel: Fuel costs for business-related trips can be claimed.
• Parking: Parking fees incurred while conducting business activities are claimable.
• Hire charges: If you rent a vehicle for business purposes, the rental fees can be claimed as an expense.
• Vehicle licence fees: The cost of vehicle licences for business vehicles is claimable.
• Breakdown cover: Expenses for breakdown cover for business vehicles can be claimed.
• Public transportation fares: Business-related train, bus, air, and taxi fares can be claimed.
• Hotel rooms: The cost of hotel stays during overnight business trips is claimable.
• Meals: Meals during overnight business trips can be claimed as an expense.

Non-allowable expenses:

• Non-business driving or travel costs: Personal or non-business-related travel expenses cannot be claimed.
• Fines: Traffic fines and other penalties are not claimable.
• Travel between home and work: The cost of commuting between home and your regular workplace cannot be claimed as a business expense.
• If you work via an umbrella company, you will almost certainly be unable to claim tax relief on travel and subsistence expenses due to the government’s introduction of Supervision, Direction or Control in 2016.

Simplified Expenses

Simplified expense is a method of calculating certain business expenses using flat rates instead of working out actual business costs. These expenses cover some of the costs of running a business from home, using personal vehicles for business purposes, and living at your business premises.

Simplified expenses are available to self-employed individuals who operate as sole traders or partners in a partnership and who use the cash basis of accounting to prepare their accounts. They are not available to limited companies or partnerships involving a limited company. To use simplified expenses, the self-employed individual must keep a record of the total amount of each expense category claimed during the tax year.

The simplified expenses available to the self-employed include:

• Flat rate expenses for business use of home – This expense covers the cost of using a part of the home for business purposes. The flat rate amount can be claimed based on the number of hours the space is used for business each month.
• Flat rate expenses for vehicles – This expense covers the cost of using a personal vehicle for business purposes. The flat rate amount can be claimed based on the number of business miles travelled during the year.
• Flat rate expenses for living at your business premises – This is a type of simplified expense available to self-employed individuals who both run a business and live at the same premises. This could include individuals such as bed and breakfast owners, hoteliers, or farmers who live on their land.

Buying vehicles

If you use traditional accounting and purchase a vehicle for your business, you can claim it as a capital allowance. If you use cash basis accounting and buy a car for your business, claim it as a capital allowance as long as you’re not using simplified expenses. For other types of vehicles, claim them as allowable expenses.

Clothing expenses

Clothing expenses are a type of business expense you can claim. Allowable clothing expenses typically include:

• Uniforms: If your business requires you to wear a specific uniform while working, the cost of purchasing and maintaining (e.g., cleaning, repairing) the uniform can be claimed as an allowable expense. This could include branded clothing, a specific dress code, or attire that clearly identifies you as part of a particular profession or organisation.
• Protective clothing: Costs associated with purchasing and maintaining clothing or gear necessary to perform your work safely can be claimed as an allowable expense. This could include items such as safety helmets, gloves, boots, goggles, or high-visibility clothing.
• Costumes for actors or entertainers: If you are a self-employed actor or entertainer, you can claim the costs of purchasing and maintaining costumes required for your performances. This includes items such as theatrical clothing, wigs, makeup, and accessories.

It is important to note that you cannot claim expenses for everyday clothing not explicitly required for your work, even if you wear it while working. This means that general business attire like suits, shirts, and ties are not considered allowable clothing expenses.

Staff expenses

Staff expenses are some of the major business costs you can claim for. Allowable staff expenses typically include:

• Employee and staff salaries: You can claim the wages, salaries, and other remuneration you pay your employees for their work as an allowable expense.
• Bonuses: Any performance-based or discretionary bonuses you pay your employees can be claimed as an allowable expense.
• Pensions: Employer contributions to employees’ pension schemes can be claimed as an allowable expense as long as the pension scheme is registered and complies with the relevant regulations.
• Benefits: Costs associated with providing employee benefits, such as private health insurance, childcare vouchers, or company cars, can be claimed as allowable expenses.
• Agency fees: If you hire temporary staff through an employment agency, the fees paid to the agency can be claimed as an allowable expense.
• Subcontractors: Costs related to hiring subcontractors for your business can be claimed as an allowable expense, provided they are engaged in carrying out work related to your business activities.
• Employer’s National Insurance: Employer’s National Insurance contributions made on behalf of employees can be claimed as an allowable expense.
• Training courses related to your business: The cost of providing job-related training courses for your employees can be claimed as an allowable expense. This includes courses that help your employees improve their skills, acquire new knowledge, or obtain professional qualifications directly related to your business.

To claim staff expenses, ensure you keep accurate records and receipts of all relevant costs, including employee contracts, invoices from agencies or subcontractors, and evidence of pension contributions.

Stock or Raw Materials

These costs are related to reselling goods and typically include the following:

• Goods for resale (stock): The cost of purchasing goods or products that you intend to resell as part of your business activities can be claimed as an allowable expense. This includes the cost of acquiring items that will form part of your inventory or stock for sale to customers.
• Raw materials: The cost of purchasing raw materials required for producing goods or products you sell as part of your business activities can be claimed as an allowable expense.
• Direct costs from producing goods: Direct costs incurred during the production process, such as labour costs or manufacturing expenses, can be claimed as allowable expenses. This includes costs directly associated with creating or assembling the goods you will sell.

Non-allowable expenses:

• Goods or materials bought for private use: You cannot claim the cost of goods or materials purchased for personal or private use, even if they are related to your business activities.
• Depreciation of equipment: Depreciation, which represents the reduction in the value of an asset over time, cannot be claimed as an allowable expense. Instead, you can claim capital allowances on qualifying assets, such as machinery or equipment, to account for their depreciation.

Legal and Financial Costs

You can claim legal and financial costs as part of business running costs. Allowable legal and financial expenses include:

• Professional fees: You can claim costs associated with hiring solicitors, accountants, surveyors, and architects for business reasons.
• Professional indemnity insurance premiums: The premiums paid for professional indemnity insurance can be claimed as an allowable expense.

Non-allowable expenses:

• Legal costs of buying machinery and property: These costs cannot be claimed as allowable expenses if you use traditional accounting. Instead, claim them as capital allowances.
• Fines for breaking the law: Legal fines cannot be claimed as allowable expenses.

Bank, credit card, and other financial charges:

Allowable expenses:

• Bank, overdraft, and credit card charges
• Interest on bank and business loans
• Hire purchase interest
• Leasing payments
• Alternative finance payments (e.g., Islamic finance)

Note that you can only claim up to £500 in interest and bank charges if you’re using cash basis accounting. You cannot claim for repayments of overdrafts, loans or finance arrangements.

Insurance policies

Business insurances including public liability insurance, employer’s liability, professional indemnity insurance and contents insurance are all allowable expenses.

Bad debts

If you’re using traditional accounting, you can claim for bad debts—amounts of money included in your turnover but never received. However, you can only write off these bad debts if you’re sure they will not be recoverable from your customer in the future. You cannot claim for:

• Debts related to fixed assets disposal (e.g., land, buildings, machinery)
• Debts not included in turnover
• Bad debts that are not correctly calculated (e.g., estimations)

Bad debts cannot be claimed if you use cash basis accounting because you only record income on your return that you’ve actually received. So, it automatically provides relief for bad debts.

Marketing, entertainment and subscriptions

Allowable expenses for marketing, entertainment, and subscriptions refer to the costs associated with promoting and advertising your business and the cost of subscriptions to relevant trade or professional organisations. These expenses can be claimed against your business profits to reduce your tax liability, but it’s important to note that some costs are not eligible for relief.

The following expenses are eligible for relief:

• Advertising in newspapers or directories: The cost of placing ads in newspapers or directories can be claimed as an allowable expense, as this is a legitimate way of promoting your business.
• Bulk mail advertising (mailshots): The cost of sending bulk mail advertising, such as mailshots, can also be claimed as an allowable expense.
• Free samples: If you give away free samples of your products or services to promote your business, the cost of these samples can be claimed as an allowable expense.
• Website costs: The cost of setting up and maintaining your business website can also be claimed as an allowable expense, including the cost of domain registration, web hosting, and website design.
• Subscriptions: The cost of subscriptions to certain publications or organisations may be eligible for relief, but there are some exceptions.
• Trade or professional journals: You can claim the cost of subscriptions to professional or trade journals relevant to your business activities.
• Trade body or professional organisation membership if related to your business: The cost of joining a trade body or professional organisation relevant to your business activities can also be claimed as an allowable expense.

On the other hand, the following expenses are not eligible for relief:

• Entertaining clients, suppliers, and customers: The cost of entertaining clients, suppliers, and customers, such as taking them out for meals or drinks, is not eligible for relief.
• Event hospitality: The cost of hosting events for clients or suppliers, such as conferences or training sessions, is also not eligible for relief.
• Payments to political parties, gym membership fees, and donations to charity: These expenses are not eligible for relief. However, you can claim sponsorship payments if they are part of your business activities.
• Subscriptions: The cost of subscriptions to certain publications or organisations may be eligible for relief, but there are some exceptions.

Professional Fees and Subscriptions

You can claim tax relief on fees and subscriptions paid to approved professional organisations or trade bodies related to your work. The organisation must be on HMRC’s approved list for this relief to be applicable.

Training Courses

Allowable expenses for training courses refer to educational courses or training programs that help you improve or maintain the skills and knowledge necessary for your business operations. These courses must be relevant to your current business activities and can include anything from refresher courses on industry-specific skills to courses on the latest technologies or business practices.

It’s important to note that allowable expenses for training courses cannot be claimed for courses aimed at helping you expand into new areas of business or to start a new business, as these are considered capital expenses. Instead, allowable expenses for training courses are specifically targeted at helping you maintain and improve the skills and knowledge necessary to operate your existing business.

To qualify for tax relief, the training courses must be directly related to your business and not for personal or recreational purposes. This means that you cannot claim for courses purely for personal development, such as language courses or courses designed to help you pursue hobbies or interests unrelated to your business.

Overall, allowable expenses for training courses can be a valuable way for self-employed individuals to invest in their business and stay up-to-date with the latest industry trends and best practices. However, it’s important to ensure that any training courses you claim for are directly relevant to your business operations and comply with HMRC guidelines.

How to Claim Allowable Expenses

Firstly, keeping accurate and detailed records of all your business expenses throughout the tax year is essential, including invoices, receipts, bank statements, and other documentation supporting your claims. This will help you accurately calculate the total allowable expenses you can claim on your self-assessment tax return.

Once you have compiled your records, you should add up all your allowable expenses for the tax year and enter the total amount on your self-assessment tax return. This can be done either online or by submitting a paper tax return to HM Revenue and Customs (HMRC).

It’s important to note that you do not need to send in proof of your expenses when you submit your tax return. However, you should keep all your records and proof of expenses in case HMRC requests to see them as part of a tax audit or investigation.

In addition, it’s crucial to ensure that your records are accurate and complete, as inaccurate or incomplete records can lead to errors on your tax return and potential penalties from HMRC. This means that you should keep track of all your expenses in a timely and organised manner throughout the tax year. By keeping accurate records and entering the correct amounts on your tax return, you can ensure that you are claiming all the eligible expenses that can help to minimise your tax bill while complying with HMRC guidelines.

If you need clarification on any aspects of your tax return, contact the Self-Assessment helpline or seek advice from a professional tax advisor or accountant.