Basically when you are self employed you spend money on 3 types of expense:
1. Capital Expenditure – Equipment & Vehicles
2. Business Expenditure – stock, wages, premises
3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses
In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.
For example, you could claim capital allowances on your car,
Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2011 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:
Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 10 per cent) = £2,000
Value to carry forward = £18,000
Capital allowance you can claim = £2,000
If you use your car partly for private and partly for business you simply disallow a % for private use.
On other assets there is an Annual Investment Allowance which is currently £100,000 per year but will drop to £25000 in April 2012.
For most business that will cover all their capital expenditure, but there are further allowances available too.
With regard to private expenditure, there are tax reliefs available for working from home
If you have to spend money on tools or specialist clothing for your job you may be entitled to either:
- tax relief for the actual amounts you spend
- a ‘flat rate deduction’