When you run a small business, every penny counts towards your bottom line. Getting more sales is the best way to make cash, but saving money is another way to keep your profits looking healthy.
One easy way to save more money is to make sure you’re claiming all of your allowable expenses – that way you’re not paying more tax than you have to.
If you're a self-employed shop owner, you might need to complete a Self-Assessment return and pay tax on the money you earn. However, there are several expenses you can claim against your income profit which will reduce the amount of tax you owe.
Claiming allowable expenses as a shop owner isn’t about avoiding paying tax, it’s about making sure you’re paying what’s fair. Our easy guide explains the ins and outs of allowable expenses to help you understand what you can and can’t claim.
What are allowable expenses?
HMRC lets you subtract the costs that have been incurred specifically due to the running of your business from your business' profit. In an ideal world, it would be much gentler on your wallet if you could deduct all expenses from your business' profits.
However, HMRC has very strict rules on what you’re allowed to claim as expenses when you're self-employed, so it pays to get clued up on them before filling out your tax return. The money that you stand to save can add up quickly, that’s why it’s important to stay on top of your invoicing and keep all of your receipts.
When it comes to major purchases that you buy to keep and use in your business, you can either deduct the cost of the equipment in the year you buy it or deduct it in smaller amounts as its value depreciates over the course of several years. These are called capital allowances and are another way to save on your annual tax bill.
What expenses can I claim as a retailer?
It's important to understand what's allowed and what's not so that you don’t become an accidental tax avoidance target of HMRC. When it comes to claiming allowable expenses for your business, there are a number of rules you should follow:
- You can only claim for the expenses you incur wholly and exclusively during the everyday running of your business.
- You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you use your mobile phone for both business and personal use, you can only claim for the expenses related to the business use and will have to show reasonable calculations for this.
- Business expenses can be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your business.
- You should maintain an accurate record of all your expenses and their receipts, so you can justify your actions if your business expenses claims are queried in the future.
Expenses claims are a complex area of taxation. If you’re struggling with the intricacies of what allowable expenses your business can claim, consult your accountant and familiarize yourself with HMRC’s list of what costs are eligible.
But even within those rules and limitations, there’s a lot of expenses that a shop owner could claim back. So, let’s look at some examples below:
Property
Expenses related to a renting or owning a physical storefront may be included as an allowable expense. Costs such as rent, mortgage interest, repairs, utilities and even cleaning are all tax deductible.
If your business is purely online, your digital storefront is also an allowable expense. That’s right – the costs of buying a website domain, a security certificate and any software or platforms that make your site run can also be tax-deducted.
Equipment
Any equipment needed to run your business can be claimed as an allowable expense. For a shop owner, equipment might include but is not limited to:
- Cash Registers
- Inventory Software
Furniture/Fixtures
In shops, it’s important to create a nice ambience that helps set you apart from other businesses with similar products or services. Therefore, decorative items and furniture such as shelving, chairs and desks can be deducted from your taxes.
Cost of wares
The money you spend on buying or making your wares can be claimed as a tax deduction. This is done by keeping track of what the costs are for your inventory and subtracting them from your gross profits for the year. Other costs associated with the sale of goods may be included as well such as the costs of getting sock delivered or costs of getting good delivered to the customer (as long as the customer isn’t paying to cover this).
It may also be possible to write off and lost or damaged stock that you are unable to sell.
Uniforms
Clothes bought to match a certain dress code are not tax-deductible. So, if you want all employees to wear black while working, this won’t count as an allowable expense. However if there is a job-specific uniform that is being used for work, it may be able to be claimed as an allowable expense.
Home office expenses
If you sell from a physical retail store, this may not be relevant but if you’re an online only shop and are using your own home to create your products, then you may be able to claim some work from home expenses. This could be internet, electricity and heating, telephone fees and more.
Since your home is dual use, you’ll have to calculate how much of each bill is related to work and can only claim that amount as an allowable expense. Therefore, this is slightly more labour intensive than some of the other allowable expense claims. Just be sure to have a clear justification and reasoning on how you worked out your proportions incase HMRC enquires about it.
You can look into simplified expenses to get a flat rate rather than calculating exact numbers. It may not be as precise, but it will be faster!
Travel
If you ever travel beyond your normal place of work to sell your wares this may be tax deductible. Perhaps trade fairs or craft fairs where you set up as a vendor for a day – or you go to meet with new suppliers and get new ideas!
Insurance
All of your business insurance policies can be covered as an allowable expense. If you have a physical storefront, then you'll definitely want to have public liability insurance. Public liability insurance will help protect your business against damage and the cost of legal claims people make against you, if you’ve done something that’s resulted in injury to a member of the public or damage to their property.
Other types of insurance you may want include contents cover which covers the contents of your business premises or stock, with choice of additional protection – including goods in transit insurance that’ll keep your deliveries safe whether on the road or in the post.
If you have any employees that work with you, you’re legally required to take out employers’ liability insurance which covers you for any claims from staff who may become unwell or suffer an injury as a result of working for you.
Marketing
In order to be successful a business will have to spend some money on promoting their business. Any time that promotion costs you money, you can claim it as an allowable expense. That means social media paid advertising, licences for putting signage outside your shop and more can be deducted from your taxes.
How do I claim allowable expenses?
You need to run a tight ship when it comes to keeping track of your business expenses. Without accurate record keeping HMRC could knock back your expenses claim. Whether it’s business mileage, fuel costs or equipment, it’s important to keep physical and digital copies of all relevant receipts.
When you add up all of your allowable expenses for the tax year, you put the total amount on your Self-Assessment tax return. At this stage, you don’t need to include receipts but it’s still important to keep accurate records.
Keep organised
You might want to create an expenses spreadsheet which you can update and amend throughout the year. It may seem like a hassle in the moment, but you’ll reap the benefits of a well-ordered catalogue of your business receipts and invoices come the end of the tax year.
To stay organised, set aside a specific time each week to make a note of the business expenses that you're liable to receive tax relief for – you may want to get familiar with spreadsheets as a way of tracking everything. By doing a bit of admin every week, it keeps claiming allowable expenses from being a daunting task during tax season. It also ensures that your expenses are more accurate because you’re taking notes as you go along when everything is fresh in your mind.
Not only will this make the claims process much simpler but if any of your claims are queried, you’ll have proof that they’re legitimate – especially handy as HMRC can request proof of expenses up to six years after they’re claimed.
Consider using software
Why not invest in accounting software to make filling out your financial spreadsheets a cinch? Take a read of AXA's guide to accounting software to help make tallying up your finances simpler.
For full guidance on how to claim your allowable expenses, including the deadline for claiming, visit GOV.UK
Maximise your savings
Nobody wants to pay more tax than they have to, which is why keeping your business as tax efficient as possible could help save you a pretty penny. Remember, the golden rule when it comes to working out what allowable expenses you can claim for your company: they must be incurred wholly, exclusively and be necessary for the running of your business.
If you're finding the process of working out what allowable expenses your limited company can and can't claim, get in touch with an accountant for advice to make sure everything is above board.
All links are checked and valid at time of publishing, 1 June 2022.
