Freelance Expenses: What expenses can your claim as a self-employed freelancer?
One of the main questions you may have as a freelancer is “what sort of expenses can you claim?”
Well, a ‘business expense’ is an expense which is wholly and exclusively for business purposes.
In this article, we’ll be covering such topics as business travel, subsistence, entertainment, use of home, pensions, fixed assets and other allowable expenses.
- 1 How to claim travel expenses as a freelancer
- 2 How to claim accommodation as a freelancer
- 3 How to claim food expenses as a freelancer
- 4 How to claim entertainment expenses as a freelancer
- 5 How to claim work clothes as a business expense
- 6 How to claim your home office as a freelancer
- 7 How to claim pension contributions as freelance business expenses
- 8 How to claim fixed assets as expenses
- 9 Other freelance business expenses
- 10 Summary of Freelance Business Expenses
How to claim travel expenses as a freelancer
To be able to claim travel expenses you must be responsible for paying for the travel costs.
The travel you are undertaking must be necessary for your work and the travel must be a journey to and from a temporary workplace.
A ‘temporary workplace’ is a base of limited duration or temporary purpose. An example of this is when you work from different sites but for the same employer.
This is shown when you have a freelance business where you work at different locations for different assignments, but your freelance business address remains the same.
Therefore you’ll be able to claim the travel and food consumed during the period you are working.
The first one is mileage and public transport.
Mileage is acclaimed at 45p a mile for the first ten thousand miles in the tax year. Thereafter it’s 25p.
It’s really important to keep a mileage log that shows when you’re going and where you’re going to – just in case the tax man want to inspect your records. The same for public transport – you must keep receipts.
Your workplace will only be considered temporary if either the period you work there for is less than 24 months or you work there for less than 40% of the total time.
The site becomes a permanent workplace from the moment you show intent to remain there more than 24 months.
You can still claim travel to the point before you know it’s going to be more than 24 months.
One important thing to note if you change workplace in a similar location – it’s only classed as a different workplace if either the cost or route is significantly different Otherwise, the 24-month rule still applies.
How to claim accommodation as a freelancer
You are able to claim accommodation if you need to travel overnight to a temporary workplace (yay for Airbnb!)
An example of this is where you work at home and occasionally you have to go long distances for meetings.
To be able to claim this though – it’s important you keep the receipt and the cost is not excessive and it is reasonable.
You may also be able to claim subsistence. This is when you’re away for a whole day and you’re having lunch while at a temporary workplace. Make sure you keep these receipts as you won’t be able to claim.
One of the more common ones is regarding accommodation. If you’re living in Bristol and you’ve won some freelance work with a client up in Manchester – believe it or not you can claim for the accommodation such as a rented property, provided this is reasonable and fair, and as long as there’s no more than two bedrooms for that accommodation or property. Unfortunately you can’t have friends or family staying with you.
Do bear in mind if your contract is going to exceed 24 months then these expenses will not be allowable under the 24 month rule.
How to claim food expenses as a freelancer
You can claim your lunch as a freelance business expense, provided you work at a temporary workplace so the 24 month rule doesn’t apply.
Are you travelling to your client sites and back every day? And also as long as it’s classed as reasonable in the eyes of HMRC.
So unfortunately going to Hawksmoor every day and spending £100 pounds on steak and chips isn’t classed as reasonable in the eyes of HMRC.
How to claim entertainment expenses as a freelancer
One expense which is slightly more complex for freelancer expenses is entertainment.
You can claim entertainment when you entertain a client or potential client for business purposes.
It’s really important to remember though, although it’s an expense you do not get Corporation Tax relief off this. However, it’s still worth you paying for this from your freelance business.
Another relief to do with entertainment is an annual staff party. You can have a party with a cost of up to £150 for each employee.
It’s really important though that you don’t go over this limit, as it means the whole amount is disallowed.
How to claim work clothes as a business expense
Unfortunately HMRC will not allow you to claim your work suit, or your shirts and ties, because this would be classed as ‘duality of purpose’ which means you ca wear them both at work but also at your own leisure.
However HMRC do allow you to claim things such as clothing that has your own business logo on it, safety gear and equipment and also uniforms which are specific to certain professions such as nurses. These would be allowable.
How to claim your home office as a freelancer
There’s a complex method that you can use when you’re calculating your home as an office. This is based on a proportion of your home bills.
The proportion of the home bills will be divvied up between a percentage of the business use for each room plus the time spent on each business task.
You should only use the complex method when you’re working from home most of the time, but you need to remember that this effectively counts as rental income and you need to include this in your Self Assessment.
How to claim pension contributions as freelance business expenses
There are two types of pension contributions: personal pension contributions and company pension contributions.
When you contribute from your own funds the Government will top this up by 20%. You also get an additional relief if you’re a high rate taxpayer, therefore the total relief will be 40%.
The second type of pension contributions are made from a company. The company can make annual contributions in a given tax year up to £40,000. It must remember this limit of £40,000 includes your personal pension contributions.
How to claim fixed assets as expenses
Another type of expense you might suffer is fixed assets. fixed assets is when you buy an item which you’re going to use more than one year and will bring in future economic benefits. An example of this would be a laptop or machinery.
Although these don’t reduce your profits in the company, you do get another type of tax relief. This is called capital allowances and this will reduce your tax paid.
Another really important point about fixed assets is when you dispose of them. This could be done via selling to another party or it is written off because it has no value.
When you do this it is really important that you tell us so we can make an adjustment in your accounts.
It is generally suggested that you consider the following expenses as they do have additional tax payable as there is a personal element to them.
The company would be liable for 13.8% National Insurance of the cash value. this cash value would be included on your Self Assessment and taxed at whatever income rate you’re taxed at.
Other freelance business expenses
Here are some other allowable business expenses you might not be aware that you can claim.
The general rule is the expense must be wholly and exclusively for business.
Here are some examples:
- Charity Donations: You can claim this when you make a payment from your company to a registered charity. However you only get the corporation tax relief to the point that business is still making a profit.
- Childcare Vouchers: As an employee of your business you can claim up to £243 per month for childcare vouchers without suffering any additional Income Tax or National Insurance.
- Glasses: If you’ve got a pair of glasses that you only use for work you can claim as an expense. However if you own a pair where you use for personal use as well – because of the duality rules you will not be able to claim as an expense.
- Stationery: Although these expenses might seem small, over time they will add up – so please make sure you claim all expenses that are pens, paper, or pads.
Summary of Freelance Business Expenses
In summary, all freelance business expenses should be wholly and exclusively for business purposes.