Self Assessment - Self Employed Expenses
by Lindsay Roadnight
last updated: 07/04/2022
Sole traders are taxed on their profits. Profits are calculated by subtracting allowable business expenses from your total income. Therefore, it makes sense to ensure you are claiming all the expenses you have in order to minimise your tax liability.
HMRC do not have a list of what is / is not an allowable expense. This is because what is a necessary business expense varies from business to business. What is a necessary business expense for a builder, may not be considered necessary for a counsellor. The rule is to think about whether the purchase is ‘wholly and exclusively for use in your business. If the answer is yes, the purchase is likely to be considered an allowable business expense. However, there are some exceptions;
- Personal Therapy
You can only claim training / CPD as a business expense where it is a refresher course. You cannot claim for training which will allow you to start a new business or expand into a new area of business (even if it is related to your current business).
In counselling / psychotherapy this often leaves a question over whether a training can be claimed. Given that there is no regulation in the field, there is nothing to say what is / is not required training.
What is clear, is that the initial training cannot be claimed. Anything subsequent can only be claimed if it is a refresher course touching on skills already established through your original training.
If you are considering undertaking a training with a large financial commitment, I would strongly recommend speaking to an accountant / bookkeeper to get some proper advice.
See HMRC Training – https://www.gov.uk/expenses-if-youre-self-employed/training-courses
Only business travel is an allowable business expense. You cannot claim for travel to a regular place of work. It is worth noting that HMRC’s definition of a regular place of work is a place where you have worked for 2 years, or know you will be working for 2 years. Travel between your home and a regular place of work is classed as commuting.
If you drive for work, the easiest way to claim expenses is through the flat rate scheme. This allows you to claim 45p per mile for the first 10,ooo miles per annum and 25p per mile over 10,000. For motorbikes there is a flat rate of 24p per mile, pedal bikes can claim 20p per mile. The mileage rate is designed to compensate you for fuel, car purchase / lease, wear and tear (tyres etc) and general servicing. You don’t have to use the flat rate mileage scheme, you can calculate the costs you’ve spent on the car and split this between personal and business use, but the flat rate scheme is easier and fairly generous.
You can claim for hotel rooms, train / plane tickets, reasonable food for overnight stays.
If you use a car for travel, you can either claim a flat rate mileage or you can claim individual expenses (insurance, fuel, maintenance etc). The flat rate mileage is a far simpler way of covering car related expenses.
You cannot claim any fines or penalties as business expenses.
HMRC flat rate mileage – https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-
See HMRC Travel – https://www.gov.uk/expenses-if-youre-self-employed/travel
Whether or not you can claim Personal Therapy as a business expense is a question that crops up time and time again. The answer is that you cannot claim personal therapy as a business expense if you are a sole trader. The hint is in the title: Personal therapy. It fails to meet the test of being ‘Wholly and Exclusively’ for your business.
If you run your private practice as a limited company, you would be able to provide counselling for your employees (you!) as a non taxable benefit, however this exception does not extend to sole traders.
If the personal therapy is mandated by your professional membership body (and that body is recognised by HMRC), then you might be able to claim it. However, none of the major professional bodies mandate personal therapy so this remains untested.
Here is a non exhaustive list of things that are likely to be considered allowable business expenses for counsellors in private practice:
- Professional Membership Fees
- Room Rental
- Supervision (including travel to / from supervision)
- ICO Membership (https://ico.org.uk/)
- Advertising (directories, website costs, Google Ads, Business cards, magazine adverts etc)
- IT equipment (laptops, phones, Microsoft subscriptions, zoom subscriptions)
- Stationery (pens, paper, printers, ink)
- Equipment for clients (flip charts, nesting dolls, mood cards)
- Decorations for your room (chairs, rugs, artwork, plants)
- Banking Fees
- Accountancy Fees
From 1st April 2022, most people in England will need to pay for COVID lateral flow tests. If you test regularly in order to maintain in person sessions, purchasing lateral flow tests would be considered a business expense
More Personal Benefits
You can claim the costs of an annual eye test, but you are unlikely to be able to claim the costs of any glasses / contacts unless the optician is willing to certify that they are solely used for work purposes. If you work a lot on a screen, you could claim for the anti-glare coating.
Whilst it may be beneficial for you to have a gym membership or health insurance, you can’t claim either of these as business expenses.
Working From Home
Many counsellors work from their own homes, and HMRC have a simplified expenses scheme which allows you to reimburse yourself for your heating / lighting etc. You can read more about this here: https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home.
Note, the simplified expenses scheme does not include phone or broadband, so you will need to calculate these separately.
You don’t have to use simplified expenses. For some, the allowances permitted under the simplified expenses may not be adequate. You can claim a proportion of your household bills instead of using the pre-defined deductions. To do this, you will need to work out how much of each bill you are going to claim back on expenses. Keep a note of the calculation along with the original bill in your records.
The self assessment process will not ask for any proof of expenditure, you only ever have to enter the figures. However, you will need to keep good records in case you are selected for audit by HMRC. It is worth noting that an audit can go back up to 7 years, so it is essential that you keep good records and that you are familiar with your own system.
A note on audits.....
I see a lot of people online detailing things they have claimed through their business and saying the deduction has been accepted by HMRC. Be careful with this. Quite often I suspect this means that the person has submitted their expenses which have not been questioned. This is very different from being audited and HMRC confirming that a specific expense is allowable.
Think of it like this….. If someone drives on the motorway at 80mph and isn’t caught, that doesn’t make it legal.
Ultimately, you are responsible for any submissions to HMRC. Even if someone else submits your return on your behalf, you will be held responsible for any mistakes or errors. It’s always worthwhile doing your own research to ensure you’re happy with any deductions you’ve made.