There’s no greater grudge task than paying your tax bill. And whilst you can’t avoid tax all together, you can minimise the amount of tax you pay.
One of the easiest ways to reduce tax is by keeping track of every allowable expense.
What are allowable expenses?
Allowable expenses are the various running costs that, as a self-employed person, you can deduct from your revenue to reduce the tax you pay to HMRC.
For example, if you made £40,000 in income last year, and had £10,000 of allowable expenses, HMRC will calculate your tax on the remaining £30,000 of profit. It therefore makes sense to track as many allowable expenses as possible. After all, maximising your allowable expense claims will reduce the tax you pay.
What purchases are ‘allowable expenses’?
Here are some examples of allowable expenses;
- Advertising or marketing
- Bank fees
- Office expenses
- Staff uniforms
- Stock or raw materials
You can check out all allowable expense categories and their details on the HMRC website.
How to keep track
The easiest way to keep track of your expenses is to use accounting software. There are four types of purchases you might want to track;
Expenses like rent and phone bills sometimes recur monthly. To track recurring expenses, you can set up a recurring bill in your accounting software. This is a set and forget feature of accounting software – you only have to do it once.
One off bills
If you receive a one off bill, like a sponsorship invoice for an exhibition, then make sure you enter this into your accounting software as soon as you get it. A great thing about entering in bills is that the software will know when the bill falls due and will remind you to pay if you forget.
When you spend in retail stores, you are generally provided with a receipt at point of sale. The easiest way to track these expenses is with your mobile using an app. The Clear Books Mobile app allows you to take a photo of the receipt. The system then reads the receipt, lifting vital information and displaying it for you to edit and save. No need to separately type the information on your receipt into your software – Clear Books does it for you.
The great thing about using a receipt scanner is that the original image of the receipt is saved. This image serves as a record of the receipt for HMRC, eliminating lost, torn, faded or damaged receipts.
If your employees pay for business expenses out of their own pockets, you’ll reimburse them later on. These employee expenses are treated the same as other business expenses and could fall into an allowable expense category. Accounting software allows you to give your employees access to snap and upload their expenses on-the-go. Add these into your end of year tax calculations to ensure you’re minimising your tax bill.
You’ll be ready for tax time in no time
Clear Books makes it easy to stay on top of expenses which will save you money and make tax time a little less taxing.
Try purchases on Clear Books today to track every single expense.