Tax Relief on What You Spend

Employees and the self-employed get the same personal allowances. But the self-employed can usually claim tax relief on more of their work-related expenditure. Buy something for £100 and the real cost after tax relief will be £78 if you're a basic-rate (22%) taxpayer, £60 if you're a higher-rate (40%) taxpayer.

You can claim relief for expenditure that's wholly and exclusively to do with your work. And if you spend money on something that's partly to do with work and partly to do with your private life, you can claim tax relief on the proportion related to your work. For example, you would be able to get tax relief on part of your gas and electricity bills if you work from your home.

As self-employed, you will be dealt with by a local tax office, which can advise on allowances. You might also consider using an accountant, at least when you first start in business, and he or she can give advice on expenses you can claim and, where relevant, on the proportion you can claim.

Tax relief comes in two forms:

• You can deduct from your income in one tax year the full cost of allowable expenses for most work-related expenditure - including gas, electricity, phone, cleaning, insurance, mortgage interest, or rent - or the appropriate proportion of such expenses.
• You can deduct from your income capital allowances for capital expenditure - including machines, computers, vehicles, and buildings. But tax relief on most capital expenditure must be claimed over several tax years. If you're a small business you can claim 40% of capital expenditure as a first-year allowance and 25% of the outstanding balance in subsequent years on some expenditure, such as machinery. On other capital expenditure, for example vehicles, the maximum first-year allowance is 25%. However, for computers and related expenditure, small businesses can currently claim a 100% first-year allowance.