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As the end of the fiscal year in the UK approaches, Right Accounts receives an increasing number of questions from self-employed freelancers, preparing to fill in their annual self-assessment tax return forms.

We always remind our clients that they get taxed on their profits (income minus expenses), which means that the more expenses they can include in their tax return, the less tax they will end up paying. However, it is not always clear what expenses are considered to be allowable and the line between business and personal expenses can often be blurry.

Here, we have selected some of the most frequent questions that we receive from our clients when it comes to claiming expenses and we share the answers to help you out too.

1. Mobile phone bills

I use my phone for both personal and work calls. Can I claim my mobile phone costs?

Generally, a phone bill is an allowable expense. The easiest way to deal with this for your tax return would be to have two separate contract phones and use one exclusively for business purposes and just claim the cost of this particular contract. However, if you are using the same number for both personal and work calls, you should mark the business calls and only claim the percentage of the bill incurred because of them.

2. Salaries and wages

Can I claim my own salary?

No, your own wages or drawings are not considered to be allowable expenses. However, salaries, wages, bonuses, pensions, benefits for staff or employees, agency fees, subcontract labour costs, employers’ NICs and the like are allowable.

3. Commuting expenses

I work in another city and have to commute to work every day. Are train tickets considered to be allowable expenses?

Living and working in different cities is your personal choice. Therefore, train tickets for commuting are not allowable expenses.

4. Motoring expenses

I use my personal car for business purposes as well. What expenses can I include in my tax return?

You can claim those motoring expenses that are directly related to your business. However, we understand that it can be difficult to assign expenses that were incurred solely for business purposes. Therefore, we suggest using the fixed rate per business mile set by the HMRC to calculate vehicle expenses instead of keeping detailed records of actual expenditure. The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, depreciation, insurance, vehicle excise duty and MOT.

The HMRC fixed rate for a car or a van is 45 pence a mile for the first 10,000 miles and 25 pence a mile thereafter. The rate for a motorcycle is 24 pence a mile and, for a cycle, 20 pence a mile.

However, please note that if you decide to use the fixed rate per business mile, you cannot claim any additional amounts for the above-mentioned expenses and you can only change to another type of calculating (actual incurred expenses) when a vehicle is replaced.

5. Home as office

I work at home and I use one of the rooms as my office. Are electricity and heating bills allowable expenses?

Yes, if the room is used solely for business purposes, that is, you do not do anything else in the room except work. However, keep in mind that you should only allocate expenses that were incurred for that one room and not the whole house. Also, if the room is also used for personal reasons (e.g. if you sleep in that room), then you can only include expenses that were incurred during the times when the room was being used for business purposes.

Accountancy and professional fees

For a couple of months, I have been settling a tax dispute. Can I claim what I have paid my lawyer?

No, you cannot. Costs of settling tax disputes and fines for breaking the law are not allowable expenses. However, generally, costs incurred for the services of accountant or solicitor are considered allowable expenses.

7. Representation fees

Sometimes I invite clients to parties or concerts. Are such expenses allowable?

Client entertainment is not an allowable expense. However, if you incurred other types of representation costs, such as advertising, these are considered to be allowable expenses.

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When you are considering whether you can include certain expenses on you tax return form, always ask yourself if those expenses were incurred solely for business purposes. Also, keep in mind that you may, at anytime, be asked to provide evidence to the HMRC that you actually incurred an expense and that it was incurred wholly and exclusively for your business.