Running your own business means you are entitled to certain tax breaks. Although HM Revenue & Customs demand that companies pay tax on their profits, the government agency do allow you to save a substantial amount of money for things you need to run your business successfully. So what tax liabilities are you entitled to?
Tools of the trade
Any tools you need to ply your trade are tax free and should be added to your expenses accounts. This could be anything from stationary, machinery, and IT equipment, or the materials you purchase if your small business manufactures anything. You can only claim expenses on tools once however, therefore if you buy a computer when you first begin your business you can only claim tax breaks for it in the first year of starting up, not every year. Make sure you keep receipts of everything you buy as HMRC may request to see a proof of purchase. It is advisable to keep a record of all expenses for six years.
Another common expense is vehicles that are used for business purposes. The current rate that you can claim for mileage is 45p a mile for the first 10,000 miles and 25p thereafter. If you use a motorbike for work you are entitled to claim 24p a mile. There is no mileage limit for motorbikes. If you ride a push bike you can also claim 20p to the mile.
If you pay rent, you can claim this back on a monthly basis together with utility bills. This is true even if you work from home. If you do work from home you are also entitled to tax breaks on your mortgage. However, there are some limitations depending on how much space you dedicate to the actual running of your business. For example if you use an office or garage that takes up 15 per cent of your property, you are entitled to claim 15 per cent off your rent or mortgage. Utility bills work in a similar way. You can only claim tax breaks for the hours you work and is harder to quantify.
Other expenses you may want to consider are things like pension contributions, money you give to charity, insurance and additional costs for meals. For example, if you have a business meeting in another city you can claim travel expenses together with hotel fees and the price of your meals. However, if you rent a room in a house whilst you are away, HMRC consider that you can prepare your own meals as you would if you were at home and therefore cannot claim expenses for a meal if you do decide to eat out.
There are several other expenses that you are entitled to claim tax breaks on, some of which can be quite complicated. For more information about tax breaks contact a member of our friendly team Taxaccolega, a low fixed fee accountant in London, at firstname.lastname@example.org or call our free phone number on 08000 235 234.