When you’re going it alone in the world of self-employment, there’s very little room for mistakes and oversights as ultimately, you are responsible for everything. In fact, when it comes to the financial aspects of being self-employed, there is an even smaller margin for error, as the bottom line inevitably hits you the hardest.
However, there’s an opportunity for those who are self-employed to gain a better understanding of what they may be entitled to claim back when filing their self-assessment tax return. Whether it’s from paying a little too much tax or paying for some everyday things that you weren’t aware you could claim for, you may be entitled to tax rebates you didn’t even know existed!
Below are the top reasons why you may be due a tax refund in the near future.
Becoming self-employed during a tax year
It’s not uncommon for people to make the transition from employed to self-employed midway through a tax year. When this happens, many people find that they’ve overpaid tax, usually due to the shift they experience between different tax codes.
When you’ve only just started as self-employed, this can be problematic and costly. But any losses you incur within that tax year should be offset against any tax that’s been paid that year, giving you more breathing room as you begin your new venture.
Working from home expenses
You may be able to claim back a certain amount of your expenses when working from home. And in a post-COVID world, it’s a benefit that all self-employed people should be looking into. You’re entitled to get back a percentage of your costs for home expenses, such as:
- Council Tax bills
- Heating bills
- Electricity bills
- Rent or mortgage interest rates
- Telephone bills
- Internet costs
However, to receive a tax rebate on this, you’ll have to figure out a fair way of dividing up and calculating the costs. This can be done by using the amount of time spent working from home, or even the number of rooms you’ve used in the house for business purposes.
Let’s use a house that has 6 rooms as an example here. For argument’s sake, let’s say that you currently use 1 of those rooms for business purposes. You then receive an electric bill for £600.
Estimating that each of those 6 rooms uses roughly the same amount of energy, you can make a claim for £100 (£600 divided by 6 rooms equals £100). Depending on the number of days you work from home, you can divide this number down further to claim for at least 1 day per week.
Clothing costs
This is strictly for industries that require some form of work uniform that you are solely responsible for looking after and cleaning. But it also includes any safety items that you may be legally required to wear during work hours.
You can claim for having to replace items that have been worn down, protective clothing, and even repair and cleaning costs for these garments.
Tools and stationery
Essential work items such as tools and stationery may also be included in tax claims. As a self-employed individual who is responsible for purchasing equipment and stationery, keeping track of your receipts can mean getting back some of those expenses at the end of the tax year.
Items like printers, tools, and other equipment that you’d usually use for less than 2 years can sometimes fall under the category of ‘allowable expenses’, depending on whether you use cash basis accounting or a more traditional method of accounting (in which case, your claim could still be made under ‘capital allowances’).
The majority of those who are self-employed peple can claim back the following items:
- Tools and stationery
- Postage costs
- Printing costs and ink cartridges
Professional licenses and training courses
Many vocations will require some kind of professional license or regular training. And in some of these cases, self-employed people are able to claim back the costs of obtaining these mandatory qualifications.
You can claim back allowable business expenses for courses and licenses that help you broaden your knowledge and skillsets in your respective field. However, the courses you’re claiming for cannot be training that helps you to start up a new venture or move into new areas of business beyond your own.
Mileage and travel expenses
Depending on the industry you’re working in, the majority of self-employed individuals are required to travel quite a lot for the sake of work. But you can claim back travel expenses under certain circumstances. In many cases, you can also claim back any costs for using public transportation for work purposes.
Generally speaking, you can claim back tax for the following things:
- Any business vehicle licensing fees
- Business vehicle insurance costs
- Repairs and servicing costs
- Any fuel or parking costs
- Breakdown coverage fees
- Fees for trains, taxis, buses, and aeroplanes
However, you cannot claim back expenses that pertain to vehicle fines of any kind or the fuel costs for travelling from home to your place of work.
Accommodation and subsistence
Some industries require self-employed individuals to travel across the country and have to stay overnight in hotels for business trips. When you add up the total for all of that food and accommodation, it can quickly build up to some hefty amounts.
For people who work for themselves, it’s not always feasible to spend that much money on a potential job that requires an overnight stay. That’s why HMRC allows self-employed people to claim back some of their subsistence and accommodation costs as a tax refund.
Marriage allowances
As possibly the least well-known reason for receiving a tax rebate, this is absolutely essential information for self-employed people to know about. If either you or your spouse is currently earning less than the personal allowance limit of £12,500 per tax year, then you may be able to get some money back.
How? Well, you are within your rights to transfer a portion of your unused personal allowance to your spouse as long as they earn above that set personal allowance amount. This can potentially save you hundreds of pounds. And to top it all off, you can claim up to 4 years in the past for this!
Having an incorrect tax code
This is especially true for anyone who has made the transition into self-employment. Sometimes, despite the best efforts and intentions, HMRC can miscalculate and put you under the wrong tax code.
In this should happen to you, rest assured that you’re legally entitled to receive that overpaid tax back and that once rectified, you’ll be back on the correct tax code and ready to go into a new tax year without any further issues.
To claim for any of these potential rebates, you must keep detailed records of every cost and business expense you get over the course of a tax year. It makes putting your self-assessment tax return together a far less daunting task and quickens the entire process.
While you aren’t always required to send in proof when submitting your tax return, you should always be prepared for it by keeping hold of all records in case HMRC make a request for them.
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