Turnover and Expenses

Your turnover is the total of the payments you receive from your customers over a time period, before you deduct the cost of goods or materials that you have bought and any allowable expenses.

If your turnover is below £150,000 a year you’ll probably be able to use the ‘cash basis’ rather than traditional accrual-based accounting, which means that you only have to declare income when it is actually received.  You don’t have to account for it at the date it was invoiced and you don’t have to declare the income if the invoice is not paid. There are some categories of business that can’t use the cash basis so check with HMRC, but for most people it’s the best option.  All you have to do is tick the box (box 8 on the short self assessment form) to say you’re using the cash basis.    

What expenses can I claim when I’m self employed?

You can deduct the costs associated with running your business from your turnover to calculate the profit on which you pay tax.

You can deduct the costs of goods that you have bought to resell or to use in the business, as well as allowable expenses including 

  • travel
  • business accommodation
  • office and equipment costs
  • employees or subcontractors
  • advertising and marketing
  • professional fees
  • financial charges

You can only claim for expenses that relate to the running of your business.  If you use something for both personal use and your business, you can only claim for the portion of the cost that is business related.  You’ll have to find a reasonable method of dividing your costs and keep a record of both personal and business use.

There are certain things you can’t claim self employment tax deductions for, even though they’re costs incurred by your business.   The one that people often find surprising is client entertainment. You can’t claim the amount you’ve spent on a client but you probably will be able to claim the costs of your own meals and drink as subsistence if you are away from home.   

HMRC give guidance about what you can claim including a self employed allowable expenses list and if you’re not sure you should seek professional advice from an accountant or lawyer.

If you’re using the cash basis for your self assessment, you only have to claim the expenses you’ve actually paid.  Money you owe is not counted until you pay it.

Triginta calculates your expenses to work out how much profit you’ll be paying tax on throughout the year.  The self employed expenses calculator is here

If your expenses are below £1000 you can claim a £1000 allowance, known as a trading allowance, rather than your actual expenses when you submit your return.   

Simplified expenses if you’re self employed

You can use simplified expenses to work out your  self employed business expenses on your self assessment return.  These use flat rates for certain categories of expenditure rather than the actual costs you have incurred to make the calculations easier.  Simplified expenses can be used for

  • Vehicles including mileage allowances
  • Working from home
  • Living in your business premises

All other costs have to be calculated using the actual costs you incur.  You don’t have to use simplified expenses if it’s more advantageous to claim the actual costs.

Can I claim for expenses before I start trading?

You can claim self employed tax allowance for the expenses you incur for up to seven years before you start trading and receiving income.  If the expenses would have been allowable against tax if you had incurred them while trading, you can claim for them when you start trading as pre-trading expenses.  Just include them as an expense on you first day of trading.

Different rules apply to the VAT on expenses if you are VAT-registered.

What can I claim for capital assets?

You can claim allowances against tax for items that you keep to use in your business such as equipment.

In most cases you can deduct the full cost of such items from your profits in the year you purchase them, as long as the total costs are within your annual investment allowance (AIA).  The maximum amount of the AIA has been raised to £1 million from January 2019.

There are certain items you can’t use your AIA for, including cars. 

Turnover and Expenses

Turnover and Expenses

Read the next section ‘Pension