The oft repeated, golden rule of taxes is that expenses must be “wholly and exclusively” for business purposes in order to qualify for relief. Easy! Except when it’s not. Where do the tax breaks come from?
Sometimes, the line separating a deductible from a non-deductible expense is blurry: When is food considered a business expense and when is it personal? Is childcare tax deductible? Can I claim my cat?
Here, we answer seven questions that might spare you some grief when the tax man comes calling:
1. Are travel costs deductible?
If we’re talking about your daily commute to and from work, then no. However, if work warrants travelling that takes you out of your daily routine, then yes!
Travel expenses might include mileage, toll charges, airfare, bus, taxi, and/or rail costs. If your business trip requires an overnight stay, you might also be able to get tax breaks on your accommodations as well.
2. Can I deduct the cost of food?
In the vein of Marie Antoinette’s famous (and probably fictitious) statement, “Let them eat cake,” the HMRC has arrived at the conclusion that “everyone must eat to live.” That sounds really positive, until you realise that it means food garners no tax breaks.
So be warned: if a regular part of your work pattern involves taking clients out for coffee, you won’t be able to deduct those costs.
The exception to this rule is that you can claim some reasonable expenses that are isolated and not a normal part of your work pattern. For example: a copywriter who normally works from home can make a reasonable case for claiming their travel costs AND the cost of their subsistence while attending a work conference.
Just keep your costs reasonable—claiming a 50-year old bottle of Macallan will certainly not sit well with HMRC and probably won’t lead to any tax breaks.
3. Can I claim costs accrued when entertaining clients?
Just in case the above warning was too oblique, we’ll reiterate: entertainment is eligible for tax breaks. This applies to both company directors and sole traders, so don’t think you’ll escape this one just because you’re not self-employed.
Admittedly, this one is confusing, because most people consider business entertainment to be wholly and exclusively for business purposes. Consequently, there’s a common misunderstanding that you can treat your client to a £330 lobster dinner at Guy Savoy and then write that meal off as a business expense. You can’t.
Gifts fall under the same umbrella, so you might want to rethink the complimentary bottles of Dom Perignon you were planning to mail to your customers.
4. Can I claim childcare costs?
Unfortunately, you will not be able to write off the full costs of childcare, even if you require those services, because you work as a sole trader.
To help with the costs, however, you might be eligible for a Working Tax Credit, which includes a childcare component. You might also be eligible for credits of £122.50 per week for a single child, or £210 extra per week for two or more children, if your children are minded by any approved childcare provider while you work.
Are my subscription fees deductible?
You might have a tough time deducting a subscription fee to Cosmopolitan magazine, but certain subscriptions and membership fees are, indeed, deductible.
The government has compiled an extensive list on HMRC approved professional organisations that might qualify for a tax break… provided, of course, that these subscriptions are necessary for your job.
Note that you can’t claim anything for memberships to unapproved organisations, nor can you claim any tax breaks on life membership subscriptions, or subscriptions paid for by a third party.
6. Are pets tax deductible?
Generally, no. You won’t be able to write off your pet guinea pig, sorry.
However, under specific circumstances, you might be able to claim an animal as either stock or a capital asset, and then claim (at least in part) some of the associated costs:
- Most farm animals, for example, are considered stock, and you can file them as you would any goods meant for resale.
- Working animals with a life expectancy of 2+ years, such as a sheep- or police dog, are considered plant, so the costs of caring for them could arguably be tax deductible.
- Alternatively, businesses that care for animals will be able to claim veterinary fees, the costs of feeding, and any other costs pertaining to animal supervision.
Sadly, the HMRC gives very sparse guidance where animals are concerned, and is notoriously loathe to give allowances for things like pet food or guard dogs that only benefit a business between operating hours.
Before claiming your animal, try to consider whether its role is wholly and exclusively for your business. If you’re still stuck, consult your accountant or contact the HMRC for guidance.
7. But I can deduct my video games, right?
Of course you can’t deduct your video games—did you really expect to get tax breaks for playing Super Mario Bros. all day?
But, while you can’t write off the time you spent playing Call of Duty, your passion might pay off if you find yourself developing those intellectual properties. The UK gives tax breaks for films, children’s programmes, animations, and, yes, video games, whose content proves “British” enough.
What does that mean? Well, the British Film Institute has devised a “cultural test” to determine exactly how patriotic your intellectual property is. A net score of at least 16/31 will qualify you for some tax relief.
See our QuickBooks Self-Employed page for more help with topics in self-employment.