If you are a registered self-employed artist or artworker in the UK, you’ll need to submit a tax return to HMRC before 31st Jan each year (online). As part of this process, you’ll be asked to give a total figure for your Allowable Expenses.
As part of the Being Really Good At Being Self Employed series, here’s an explainer and cheatsheet to help you work out what an Allowable Expense is!
Being Self Employed means you can claim Allowable Expenses against your income to lower your tax bill. When you are submitting your tax return to HMRC, you’ll be asked for your total income from Self Employment and the total costs you have paid out to enable you to carry out this work (your expenses).
EXAMPLE: Your total income from Self Employed work is £10,000, and you claim £2,000 in allowable expenses. You only pay tax on the remaining £8,000 – this is your “taxable profit”.
What is an Allowable Expense?
The key rule of thumb when working out whether something is an Allowable Expense for HMRC is that they are “wholly and exclusively” for the purpose of your Self-Employed work (and not for personal use). There are a wide range of things that are covered, so take a look at the following resources to work out which ones might apply in your situation:
- Link to Official HMRC list – https://www.gov.uk/expenses-if-youre-self-employed
NOTE: If you are buying large-scale machinery, cars, or buildings for your business, you’ll need to learn about Capital Allowances. In this case, you’ll probably want to work with an accountant for advice on this as we won’t cover this as part of this beginner-level overview.
What if my total Allowable Expenses are less that £1,000?
If your total expenses are less than £1,000 per year, you can tick an option on your Self Assessment tax return to claim a £1,000 tax-free ‘trading allowance’ instead.
EXAMPLE: Your total income from Self Employed work is £4,000, and your total allowable expenses are £850. In this situation, you will be better off claiming the flat-rate £1,000 ‘trading allowance’ instead of submitting your total expenses. You only pay tax on the remaining £3,000 – this is your “taxable profit”.
Do HMRC want to see all of my receipts for Allowable Expenses?
The short answer is NO, however you must keep records of all the purchases you have made in case your HMRC tax return is audited.
If you have been following my easy method for Doing Your Tax Return, you’ll know that it is easiest to keep a digitised record of your spending (eg photos of receipts). You need to keep hold of these digital copies of your receipts for up to 7 years (5 years after the 31st Jan deadline of the tax year they relate to), and you can ditch the paper receipts!
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