Expenses

Definition: In the context of Self Assessment submissions in the UK, expenses refer to the costs incurred by individuals or businesses that are necessary for earning income. These expenses can be deducted from total income when calculating taxable profits, which ultimately reduces the amount of tax owed to HM Revenue and Customs (HMRC).

Types of Expenses

• Allowable Expenses: These are the costs that can be claimed against your income. They include expenses such as travel, office supplies, utilities, and professional services. The key requirement is that they must be wholly and exclusively for business purposes.
• Disallowable Expenses: These are expenses that cannot be claimed, as they are not directly related to earning business income. Examples include personal or private expenses, such as everyday clothing or personal entertainment.

Importance in Self Assessment

Properly categorising and claiming allowable expenses is crucial in Self Assessment submissions because it can significantly reduce your taxable income, ensuring that you do not overpay tax. However, incorrect claims can lead to penalties, so it is essential to keep accurate records and understand what qualifies as an allowable expense under UK tax law.

Record-Keeping

HMRC requires that records of all expenses be kept for at least five years after the 31 January submission deadline of the relevant tax year. This includes receipts, invoices, and any other documents that support your expense claims.

Summary

Expenses play a vital role in Self Assessment submissions by reducing taxable income through allowable deductions. Understanding and correctly claiming expenses can help you minimise your tax liability while staying compliant with UK tax regulations.