In general, nearly all the expenses incurred wholly for business purposes will be allowable for tax purposes, with the exception of entertaining expenses, fines and penalties.
One of the most common types of allowable business expenses will be telecommunication costs (ie telephone calls and internet connection charges). If you use the same landline or mobile phone for both personal and business calls then you will have to be careful and only include the costs of the business calls as your trading expenses. The computer and office equipment you have bought will qualify for capital allowance claim, but may be restricted if you use them both for business and private purposes.
There are cases where you may have to join professional bodies or trade associations before you can commence trading or you need to carry out research in order to get inspiration for your own work. For these situations, the subscription fees you paid, books or journals you bought, exhibitions or show that you attended or fees you have paid to your subcontractors can all be counted as allowable business expenses.
Due to the nature of your self employment, some of you may have to acquire special tools, props or clothing for health and safety reasons or to enable you to carry out your performance (if you are a performing artist). Such items are regarded as tax allowable expenses. The associated cleaning or maintenance costs will also fall into the category of allowable trading expenses. However, please note that costs of ordinary everyday clothing, even if they are bought specifically for business use are not allowable for tax purposes.
For the self employed artists who work from home, you should be entitled to claim some of premises costs. The HM Revenue & Customs will generally allow the followings:
• Additional light and heating costs for occupying the premises as your office/workshop
• The increase in insurance premium for having to insure the business equipment or pieces of your artwork stored at your home.
It is a misconception that you can simply claim a percentage of your mortgage interest, domestic and water rates as costs for use of home as office.
The Revenue has specifically disallowed non-business part of running costs of premises used only partly for business. They are of the view that you will be liable for your domestic and water rates irrespective of whether you work from home or not. Claiming part of your mortgage interest on your private residence as business expenses may prevent you from claiming a 100% capital gain tax exemption on the future disposal of your home. You are only allowed to claim tax relief on interest on loans and overdraft used solely for business purposes.
Keeping a record of your Receipts:
What is the best to keep and make sense of your records and bills? Good housekeeping is essential here. For smaller businesses, you may find using Excel Spreadsheets to records your transactions will suffice. However in cases where you have a large volume of transactions or they are of a complex nature then you should consider using some accounting software for your business. There are a number of such software packages available on the market and please do go to the retailers and take a look at a demonstration before making your final decision.
Do remember whatever format you decide to record your business transactions, it is important that you keep good accounting records and retain them for six years. You may have to produce such supporting documents if the HM Revenue & Customs enquire into your personal tax returns or vat returns. This is regardless of whether you have made a profit or loss on your self employment business.
© Anna Bulmer 2012
This article is for information only, and not for the purpose of providing accounting and taxation advice. Readers should consult an accountant for accounting and taxation advice on specific matters.