Allowable business expenses in the UK Thread poster: Michael Hughes
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Michael Hughes 
United Kingdom
Local time: 12:42
Member (2022)
Japanese to English
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I've started doing some freelance translation (for which I don't expect to earn above £3k or so per year for the time being) alongside my full-time job. I'm a higher rate tax payer from my day job, so any freelance income is going to be taxed I would guess at 40% (plus potentially some NI contributions). I've heard though that 'allowable business expenses' can be quite broad, so if I were to use much of that £3k purchasing, for example, a dedicated laptop for translation work, Proz and other p... See more I've started doing some freelance translation (for which I don't expect to earn above £3k or so per year for the time being) alongside my full-time job. I'm a higher rate tax payer from my day job, so any freelance income is going to be taxed I would guess at 40% (plus potentially some NI contributions). I've heard though that 'allowable business expenses' can be quite broad, so if I were to use much of that £3k purchasing, for example, a dedicated laptop for translation work, Proz and other professional memberships, Trados subscription etc; those elements would not be taxed. I wasn't intending to fork out for all of these initially, but getting effectively a 40-50% 'discount' on them sounds quite attractive.
I was wondering if anyone familiar with self-employment tax in the UK might be able to confirm I haven't grossly misunderstood how this all works? Many thanks. ▲ Collapse
| | | | Dan Lucas
United Kingdom
Local time: 12:42
Member (2014)
Japanese to English
Michael Hughes wrote:
I was wondering if anyone familiar with self-employment tax in the UK might be able to confirm I haven't grossly misunderstood how this all works? Many thanks.
Michael, I think it is potentially complex, and I'm not at all sure how it works for a sole trader. My company can and does buy equipment for my use, and I can use enhanced capital allowances for larger purchases (and also reclaim VAT).
I think you want to be quite careful with tax issues like this, and also marginal tax rates if you inadvertently move tax brackets and so on. I pay my accountant to do this for me, not only because she lives this stuff every day, whereas I visit it only once every few months, but also because even when you think you understand it another budget will come along and it will change materially.
My approach would be to find an accountant and buy some time from them to see where you stand. Failing that, I suspect you will get more informed responses from a forum like the ukbusinessforums.co.uk, where there is a much greater concentration of UK-specific expertise than on ProZ.com.
Regards,
Dan
[Edited at 2022-09-24 14:41 GMT]
| | | | Michael Hughes
United Kingdom
Local time: 12:42
Member (2022)
Japanese to English
+ ...
TOPIC STARTER
Very good points - I may just bite the cost and get some professional advice as you suggest just to avoid any issues later.
| | | | | Capital allowances | Sep 24, 2022 |
Computer etc should be spread over useful life
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Steve Robbie
United Kingdom
Local time: 12:42
Member (2017)
German to English
+ ...
| You can claim the £1,000 flat rate allowance | Sep 26, 2022 |
https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
You only have to keep track of your expenses if they amount to more than £1000 per year.
If your expenses are lower than that (mine always are) you can claim the £1000 flat-rate allowance on trading income. "Trading" means any self-employed activity, in... See more https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
You only have to keep track of your expenses if they amount to more than £1000 per year.
If your expenses are lower than that (mine always are) you can claim the £1000 flat-rate allowance on trading income. "Trading" means any self-employed activity, including freelancing. In other words, you simply knock £1000 off your taxable income without needing to provide any evidence or keep any records. It's nice and simple and you won't have to fork out for tax advice.
I'm assuming that your "day job" is a salaried position. If you're self-employed in your main business too, things might be more complicated.
[Edited at 2022-09-26 17:52 GMT]
[Edited at 2022-09-26 17:55 GMT] ▲ Collapse
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Steve Robbie wrote: https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income You only have to keep track of your expenses if they amount to more than £1000 per year. If your expenses are lower than that (mine always are) you can claim the £1000 flat-rate allowance on trading income. "Trading" means any self-employed activity, including freelancing. In other words, you simply knock £1000 off your taxable income without needing to provide any evidence or keep any records. It's nice and simple and you won't have to fork out for tax advice. I'm assuming that your "day job" is a salaried position. If you're self-employed in your main business too, things might be more complicated. [Edited at 2022-09-26 17:52 GMT] [Edited at 2022-09-26 17:55 GMT]
Are you confused, or am I?
The flat-rate trading allowance is £1000 of revenue you don't need to declare.
Flat-rate expenses are for employees and are much lower.
Or???
| | | | Steve Robbie
United Kingdom
Local time: 12:42
Member (2017)
German to English
+ ...
Ice Scream wrote:
Are you confused, or am I?
The question was about "self-employment tax" on the asker's freelancing work.
The trading allowance allows self-employed traders to claim £1000 in expenses irrespective of what expenses they actually incurred. You can *either* claim the allowance *or* claim for your actual expenses, if higher.
Claiming for expenses reduces your taxable income. So if you claim the £1000 allowance, you're knocking £1000 off your taxable income.
| | | | Samuel Murray
Netherlands
Local time: 13:42
Member (2006)
English to Afrikaans
+ ...
| A tax adviser | Sep 28, 2022 |
Michael Hughes wrote:
I've heard though that 'allowable business expenses' can be quite broad...
A tax adviser/accountant can tell you exactly what you're allowed to deduct.
In the mean time, it may also be good to check if your expenses are under the GBP 1000 that Steve mentions. ProZ.com membership is USD 170, Trados costs USD 600, hmm, so you're still under GBP 1000 (and thanks to your new prime minister, GBP 1 is USD 1). But if you're also going to buy a laptop, it's going to push you over that limit and you may be able to gain a few tenners by declaring your actual expenses in that year.
I agree with Simon (or whatshisname, can't remember) that something like a laptop can often be deducted over multiple years. So e.g. if the laptop costs GBP 1000 but you deduct it over 2 years, you deduct GBP 500 in year 1 and GBP 500 in year 2. I'm not sure what is the reasonable duration for a laptop in the UK, but in my own country, the cost of a personal computer can be spread over a maximum of 2 years. Note: I'm not sure if this kind of spreading is compatible with the GBP 1000 allowance.
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Tom in London
United Kingdom
Local time: 12:42
Member (2008)
Italian to English
| | We live and learn | Sep 28, 2022 |
Yeah, but there's also a "partial" trading allowance which Steve was referring to. I never knew about it before, but you can literally just claim £1000 expenses.
Mine were £2000 last year even before computer costs and accountancy. I can't imagine getting below £1000 a year once you've claimed phone, travel, rent and utilities. Unless, of course, you're doing it very, very part-time like the OP!
| | | | Daryo
United Kingdom
Local time: 12:42
Serbian to English
+ ...
| Basically you got it right! | Apr 28, 2023 |
Michael Hughes wrote:
I've started doing some freelance translation (for which I don't expect to earn above £3k or so per year for the time being) alongside my full-time job. I'm a higher rate tax payer from my day job, so any freelance income is going to be taxed I would guess at 40% (plus potentially some NI contributions). I've heard though that 'allowable business expenses' can be quite broad, so if I were to use much of that £3k purchasing, for example, a dedicated laptop for translation work, Proz and other professional memberships, Trados subscription etc; those elements would not be taxed. I wasn't intending to fork out for all of these initially, but getting effectively a 40-50% 'discount' on them sounds quite attractive.
I was wondering if anyone familiar with self-employment tax in the UK might be able to confirm I haven't grossly misunderstood how this all works? Many thanks.
Yes, you got the basic facts right: a computer bought "for personal use" (= your personal consumption, paid from what's left to you **after** your income was taxed) will in effect cost you a lot more than the exact same computer bought "for business use" (= your business expense, paid **before** your revenue gets taxed), especially if you're in the higher income tax bracket and even more if you're registered for VAT. Roughly the double!
As always, the devil is in the details, as other pointed out. BTW be very careful about claiming part of the rent as "business expenses" as it could turn your home into business premises, and end up costing you down the line far more than what you saved on income tax.
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