Originally taken from an industry forum, and shared with permission:
I thought it might be useful if I shared some of my experience as an ex HMRC compliance officer so here’s a list of useful things to take into account in relation to Self Assessment.
Turnover – It must include all of the money you’ve brought in, I’m sure many of you are thinking “duh! no shit sherlock” however you’d be amazed at how many people have argued that they “didn’t think cash sales had to be included” or “but these were sales on eBay, surely they don’t count?” yes, yes they do.
Expenses – In general, expenses are only allowable if they are incurred actually carrying out your work and therefore must be relevant to the job itself. For example, a bricklayer will have problems getting that £2k PC and office setup past an inspector. Likewise, a hairdresser sticking a load of cement on expenses will raise eyebrows. The office bit goes for everybody, you may feel that putting a laptop on expenses is perfectly allowable because you have to complete a tax return. Thing is, you don’t have to complete that tax return to do your job, it’s an incidental, doing tax, going to the bank etc are all as a consequence of working. If you didn’t do them you could still lay those bricks, cut that hair, write that computer program or whatever else it is you do.
For things that you do need, it isn’t safe to assume that you can invest in the most expensive, flashiest version of it. You’re a website developer? yes, you need a PC, desk, chair and monitor. Order a 55″ 4K monitor and you may find you don’t get the full amount allowed. That executive, leather bound chair with built in massager for a grand? yeah that’ll be reduced to the price of a standard office chair should you get an enquiry.
Things that you do buy should be solely used for the purposes of business, if not, then it could be disallowed so again, that laptop, if you’re surfing Facebook on an evening then you’ll need to apportion the business use and only claim for that and don’t think that apportioning means 90% work, 10% play. Generally, if an officer thinks private use of a laptop then you’ll be fairly lucky to get 50% allowed (after all, the work day is only a 3rd of the time available).
Any inspector doesn’t have to prove that you use it outside of work, the onus is on you to prove that you “wouldn’t under any circumstances”. The classic example is a car owned by the business, you’ll have zero chance of proving that it doesn’t get used for anything else if there are no others cars in the property.
Food – its a classic misconception that you can claim for food while at work…there are times when it’s possible but they are few and far between. If you’re in an enquiry and have claimed food I can guarantee you’ll be given the line “you eat to live, not eat to work”.
Clothing – you cannot claim for any clothing other than safety work related items, the likes of steel capped boots, hi-viz jackets, aprons etc are good. Suits, jeans, t-shirts and trainers are not. If it can be worn outside of work then it’s not claimable, simple as.
Travel – For many this won’t be an issue as your jobs involve going from one place to another but for some travel is not allowable. If you work at the same place every time then you can’t claim for travel, that’s called commuting and it’s something we all have to do (or did before Covid). So the CIS bricklayer working on the same site all year…no travel. The self employed hairdresser who rents a chair at Clarez Cutz…no travel. Mobile gardener, builder, mobile hairdresser etc and you go to different places regularly then yes, claim that mileage.
While we’re talking about mileage rate though, don’t think you can just stick in a log that shows you’ve done 20k miles and it’s sorted. They’ll cross reference it with your bank statements to see fuel purchases and more importantly, the online MOT details to see how many miles you’ve travelled in that year.
Same for if you work away from home, if you stay away 5 nights a week and return to the family home on a weekend then you can’t claim for that trip, that’s a personal choice to go home, you don’t need to do it for the job. Also, if you permanently work away at the same place then you’ll hit a problem claiming for the accomodation at some point. There’s no hard and fast rule but if you’re from Newcastle and work constantly in London then London becomes your permanent workplace.
Do you need receipts for your purchases? of course you do and anyone on here who tries to sell you a service saying you don’t is simply taking you for a ride. Other than mileage claims where you need a verifiable log you’ll need receipts to cover every single expense. No receipt? chances are that it’ll be disallowed. No receipts at all and your return will be amended to show a small percentage of your turnover as expenses.
I know what some of you are thinking “he’s talking rubbish, you can claim for x, I’ve done it for years”…you may well have done, all that means is you’ve not been caught. Sending your return in each year is not confirmation that HMRC agree with you, it simply means they’ve received some figures from you. It’s only when you’re pulled out for one of those dreaded enquiries that they’ll actually look at what you’re claiming. If they find things then they’ve got the right and ability to go back 6 years and recalculate the tax (if they find you’ve purposefully done it then they can go back 20 years!).
So when John in the bait cabin says “course you can claim for a suit, I do every year” or Frank tells you to put that meal on expenses just ignore them.
It is worth remembering that this is why people like us are here – to answer the questions about what you can “get away with” and what you can’t. What is an appropriately claimable expense for one type of business, may well not be for another. Using the office chair example above – no, the “executive leather bound chair withy built in massager” costing £1,000 would not be allowed, however if your business is office based (as opposed to for instance a builder who spends a limited amount of time in a home office doing quotes etc.), then an ergonomic chair, certified for long term usage likely would be allowed.
There are so many “ifs and buts” around what is and is not claimable, but the best rule to follow is “if you’re not sure, ask” and remember that while there are very strict limits on many things for sole traders and partnerships – subsistence (allowable food and drink while working away from home) being one of them – a limited company can write their own expenses policy for such things (within reason).