As a small business owner or freelancer, understanding which business expenses are tax-deductible can make a huge difference to your bottom line. The more you claim, the less you pay in tax. However, many business owners miss out on valuable tax relief opportunities simply because they don’t know what they can claim. In this post, we’ll show you how to maximise your tax relief on business expenses, helping you save money and stay compliant with HMRC.
1. What Counts as a Business Expense?
Before you can maximise your tax relief, you need to know what qualifies as a business expense. Generally, anything you spend money on that’s necessary for your business to operate is a valid expense. This can include:
Office supplies like stationery, computers, and printers
Travel expenses for business trips, including transport, accommodation, and meals
Marketing costs such as website design, advertising, and promotional materials
Professional services, including fees for accountants, legal advice, or business consultants
2. Home Office Deductions
If you work from home, you may be able to claim a portion of your home expenses. This can include:
Rent or mortgage interest
Utilities such as heating, electricity, and water
Internet and phone bills
To claim these, you’ll need to calculate the proportion of your home used for business purposes. For example, if your office occupies one room of a five-room house, you may be able to claim 20% of your home expenses.
3. Keeping Accurate Records
One of the most important aspects of maximising your tax relief is keeping accurate records. Proper record-keeping ensures that you can provide proof of all your business expenses.
Use accounting software: Tools like QuickBooks, Xero, or FreeAgent can help you track your income and expenses.
Save receipts: Keep digital or physical copies of receipts for all your business-related purchases.
Separate personal and business expenses: Maintain separate bank accounts and credit cards for business and personal expenses to avoid confusion.
4. Understanding Capital Allowances
Capital allowances allow you to claim tax relief on larger purchases, such as equipment, machinery, or business vehicles. The amount you can claim depends on the type of asset and its expected lifespan.
Annual Investment Allowance (AIA): This allows you to claim 100% of the cost of qualifying assets (e.g., computers, machinery) up to a certain limit, which is currently £1 million.
Writing Down Allowance (WDA): For assets that don’t qualify for AIA, you can claim a percentage of the asset’s value over time.
5. Claiming VAT on Business Expenses
If your business is VAT-registered, you can claim back VAT on purchases related to your business. This includes:
Office supplies
Professional services
Equipment purchases
Be sure to keep VAT invoices and submit them in your VAT returns. This can significantly reduce the cost of goods and services you purchase for your business.
6. Employee and Contractor Costs
If you employ staff or hire contractors, you can claim deductions for their salaries, wages, and related costs. This includes:
Salaries and wages: The money you pay your employees can be deducted from your taxable income.
Employer National Insurance: You can also claim back the National Insurance contributions you make for your employees.
Contractor fees: If you hire contractors for specific tasks (e.g., website development or marketing), their fees are deductible.
7. Professional Development
Investing in your professional development is not only a good idea for your business but can also lead to tax relief. The costs of attending relevant courses, training, and conferences can be claimed as business expenses. This includes:
Course fees for workshops, online training, or professional certification
Travel and accommodation for business-related events
Books or subscriptions related to your industry
8. Don’t Forget About Mileage Claims
If you use your personal vehicle for business purposes, you can claim back mileage expenses. HMRC offers a fixed rate for business mileage, which includes the cost of fuel, insurance, and vehicle depreciation.
Standard Mileage Rate: For 2021/2022, you can claim 45p per mile for the first 10,000 miles and 25p for each additional mile.
Log Your Business Miles: Keep a detailed record of your trips, including the purpose of the journey, the distance travelled, and the date.
9. Take Advantage of Tax Relief on Interest Payments
Interest payments on loans or credit taken out for business purposes are deductible. Whether you’ve borrowed money to start your business or took out a loan for equipment, the interest you pay on the loan is tax-deductible. Ensure that you keep records of the interest payments made throughout the year.
10. Work with a Tax Professional
Maximising tax relief can be complex, especially when it comes to more intricate expenses like capital allowances or international VAT. Working with a tax professional can help you ensure that you’re claiming everything you’re entitled to while staying compliant with the law. A tax advisor can also offer strategic advice on how to structure your business to maximise deductions.
Maximising your tax relief on business expenses can help you save money and reduce your overall tax liability. By keeping detailed records, understanding what qualifies as a deductible expense, and using available tax relief schemes, you can ensure that your business is running as tax-efficiently as possible. Don’t leave money on the table—take the time to claim every eligible deduction.
