There are two types of expenditure a business may have:
- business expenditure
- capital expenditure
This section will explain the difference between these two sorts of expenditure and give you a basic introduction to the type of expenses that you can claim. This section will also explain about simplified expenses and how they could benefit you. You can deduct the full amount of your allowable business expenditure from your business income to work out your taxable profits. However, some expenditure is not allowable for tax purposes and some is only partly allowable.
Your own personal expenses, any money you pay to yourself (personal drawings), personal clothes or personal goods are not allowable.
If you buy something that is mostly used for your business, but you also use it personally, you cannot claim for all of it.
You must be able to separate the money you have spent for business and private purposes, and only the business part is allowable.
You must keep records to support this.
What am I allowed to claim as a business expense?
I realised that what I spent the money on affects whether – and how – I could claim tax relief for it.
I needed to separate the business expenditure from my private expenditure as it is only the business part that is allowable.
I have a mobile phone that I use for my business, I also use the phone to make private calls.
As I can only claim the cost of the business calls I make, I need to make sure that I keep records to support this.
I also need to make sure I regularly update my records and keep the information securely, as these records will help me to complete my Self Assessment tax return.