Mums On a Mission: What Self-employed Tax Reliefs Can You Claim?
Thousands of mums in the UK are choosing self-employment as their solution to finding flexible, family-centred work.
Most are unaware that you are entitled to claim a variety of tax reliefs, so you could be missing out on thousands of pounds!
Whether you’ve started your own business from home whilst on maternity leave or during your child’s preschool years, make sure you know which tax allowances you can claim for.
Definition of ‘Self-employed’
HMRC has specific definitions for different terms in order to operate a taxation system that can be applied to a broad range of employment circumstances.
If you are self-employed you are either providing goods as a ‘trader’, or services to your customers with the intention of making a profit. This might be set up as a business partnership or a sole trader.
Self-employed also means that you choose when, how and where you do the work and you are responsible for the business’ success or failure. You provide any necessary tools or materials and must fix any mistakes at your own cost. You may have several clients simultaneously and may have employees that you pay. You may also have items that you sell at a fixed price or you agree a price for your services with each client at the beginning of a contract.
If you sell goods or services for the purpose of making a profit then HMRC consider you to be ‘trading’ if you are in any of these categories;
• You buy and sell online through auction sites like eBay or other trading websites.
• You sell items on a commission basis for other people, for companies like Avon.
• You agree a fixed price for your service with each client; for example, if you are a freelance writer or tutor.
• You sell things you have made for a profit; for example, art work or occasion cakes.
• Regular selling at car boot sales or through the classifieds.
Paying tax is an inevitable necessity for any business, whatever its size. But you are also entitled to a variety of different tax relief allowances as a self-employed taxpayer.
What is an ‘allowable expense’ for the self-employed?
An ‘allowable expense’, as defined by HMRC, is a cost you pay with the “sole purpose of earning business profits”. In other words, nothing personal; only outlay that is specifically spent on your business.
Usually, you can deduct the full cost of something that you have bought for your business when you are working out your taxable profits and get tax relief for that full amount. Not all business expenses qualify, so it’s worth checking out which tax reliefs apply to your personal situation.
Allowable expenses include;
• Car, van and travel expenses including servicing, tax, petrol/diesel and repairs. This is worked out as the proportion of mileage you make for journeys that are solely to do with your business (not the school run, unfortunately!).
• Stationery, postage and home office equipment.
• Professional journals and membership subscriptions to professional bodies.
• Advertising costs.
• Phone and internet usage for business purposes.
• Legal and accountancy fees.
• Credit card, overdraft and bank charges.
• Business specific insurance policies. For example, if you are a registered childminder.
• Raw materials and other goods you have purchased to resale.
• A proportion of your fixed household costs if you work from home. This includes;
• Council tax
• Mortgage interest
• Heating, electricity and water rates.
This is calculated quite simply by the proportion of space that you use to work in. If your home has four rooms and one of them is your office, then 25% of your household costs would be allowable for tax relief. The amount of time you spend during a week working from home is also part of the calculation.
If you said “that’s me!” to just one of the expenses on the list above, then it is worth checking out your situation in more detail. Many self-employed mums may feel it is wise to seek professional help with submitting a tax relief claim to ensure that they get back everything they are entitled to.
Whether you are a freelancer, part of a franchise, or selling your own goods – if you are self-employed you are entitled to a tax rebate on your business expenses. So don’t miss out!