Table of Contents
In Short
- You can deduct allowable business expenses, such as office costs, travel, and staff wages, to reduce your taxable profit.
- Expenses used for both personal and business purposes must be proportionally allocated.
- Capital allowances offer additional tax relief on business equipment like vehicles and computers.
Tips for Businesses
To support your tax claims, keep accurate records of all business-related expenses, including receipts and invoices. Separate personal use from business costs when claiming deductions, and consider capital allowances for significant business assets like equipment.
When you run your eCommerce brand, one of your primary aims is to make as much profit as possible from your business activities. You will likely be running your eCommerce company as a sole trader or limited company and incur expenses for business purposes, affecting your business’s total income. Where these business costs are allowable expenses, you may be able to deduct these from your profit, affecting your taxable profits. This benefits your internet brand, so deducting allowable business expenses is something you will likely do in your self-assessment tax return. This article will explain self-employed expenses in terms of legal deduction and compliance requirements.
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What are Business Expenses?
Your eCommerce business expenses include various costs enabling you to run your e-commerce brand. These are your business expenses. Where these expenses are counted as allowable, they can be deducted when you calculate your taxable profit.
There is an extra rule when considering expenses if you are a limited company. Although you can still deduct these from your profits as a sole trader and pay less tax, you must report items you use personally. These are your company benefits.
What Counts as an Allowable Expense?
You can claim allowable expenses by deducting them from your profit to calculate your taxable profit.
Allowable expenses include:
- office costs, such as stationary and telephone bills;
- travel costs, which can also include parking, meals and hotel costs;
- clothing expenses such as office uniforms;
- staff costs such as wages and pensions;
- items you purchase to resell, such as your eCommerce stock, and this also includes the costs of producing goods;
- financial costs such as business bank charges and legal fees;
- business premises costs such as rent, heating and business rates;
- advertising and marketing, such as the costs to host your website; and
- training costs, which are specifically related to your internet brand.
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How Do I Claim Business Expenses?
You can claim your business expenses through your tax return, which must detail these to determine the taxable profits. Therefore, your eCommerce business must keep good records of the expenses your business incurs. This will include, for example, the following:
- invoices; and
- receipts.
What About Expenses and Personal Use?
While you can claim the costs of allowable expenses against your total business profit, you can only do so for business use. This will affect your internet brand if you are home-based. Therefore, when claiming expenses such as your heating and electricity, you can only claim the business proportion of these costs.
Even if you are not home-based, you will probably use items for personal use, such as your phone bill. Therefore, if the annual bill totals £150 for the year, and £50 of this was for personal use, you will claim for the business use of £100.
What are Capital Allowances?
Capital allowances are another form of tax relief your eCommerce business may be able to claim. You may be able to claim this if you carry out traditional accounting.
You can claim this on items you buy for your business and use for it, such as a business vehicle or equipment like PCs. Additionally, you can deduct the cost of these or part of them from your profit, leaving you with a lower sum to pay tax on.
Key Takeaways
Your eCommerce business will incur business expenses, which are costs to run your brand. Deducting these from your business profit where they are allowable expenses is possible. These include office costs, such as stationary, clothes, and work uniforms. You can claim expenses in your tax return, but where they are for personal use, this proportion cannot be included. Capital allowances are another form of tax relief, but they relate to items you purchase for your business. For example, the computers from which you run your eCommerce brand.
If you need help understanding self-employed expenses in terms of legal deductions and compliance requirements, our experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
You must declare items you use personally when you claim allowable expenses for your eCommerce brand as a limited company. These are company benefits.
You can legally claim allowable expenses, such as travel costs, which are part of the running costs of your business.
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