Do you know what business expenses you can and can’t deduct from your tax bill? We get lots of questions about this so here’s an overview of the sorts of expenses that are tax deductible for creative businesses. Sometimes how you’ve set up your business will determine what you can claim, so read on to find out what applies to you.
Limited company or sole trader?
Tax deductible expenses for your creative business vary depending on your company structure. If you are a freelancer paying income tax, then you can’t claim some of the costs that are allowable for limited companies such as business entertainment costs, pension contributions and benefits such as private health cover.
What does HMRC say about tax-deductible business expenses?
The HMRC test you must pass to deduct a business expense for tax purposes is ‘Is the cost wholly and exclusively for business purposes?’ This means if an expense is incurred not just for business reasons, then this would not pass the test. For example, let’s say you are a photographer and you buy a camera to use in your business, this is a deductible cost. However, you also buy a new iPad which you partly use for business and partly to watch films, this cost is not exclusively for business purposes and is therefore not deductible against your income tax or corporation tax.
So what expenses are tax deductible for all creative business owners?
- Advertising and marketing
Whether you are a limited company director or a sole trader, you can claim all costs associated with advertising and marketing your business to find clients. This might include costs of business networking, paid advertisements, website costs and specialist support for marketing.
- Admin
Business expenses such as stationery, postage, printing and support to manage your admin can be deducted.
- Home office
If you work from home, you can deduct the costs of running your office. This could include landline, broadband and mobile phone costs as long as the bills are in the company name and any private use is not significant. Additionally, you can claim for items such as office chairs, desks, printers, PCs, laptops etc.
- Studio rental
Creative businesses often incur costs for renting out spaces or studios to work from. These business expenses are all fully deductible. You might also incur rates, heating, lighting and other utilities which are all claimable.
- Business travel
Travelling to and from work events, whether that’s a photography shoot, a film set, a gig, exhibition or just meeting a client away from your usual place of work is an allowable expense. This could include fuel, train/bus/airfares and parking fees. Should you need to stay overnight, you can claim accommodation and meals.
Note: As a sole trader you can’t claim for meals taken on trips where there is no overnight stay or where you might pay for food/drinks for a client or supplier. If you have a limited company, you can claim for staff entertaining but not for client entertaining. The rules can get a bit complicated so it’s worth asking your accountant to check on the amounts you can claim.
- Equipment
Creative businesses sometimes use lots of equipment such as video cameras, tripods, lighting rigs, microphones and other sound equipment, props, art materials, instruments and so on. All these are tax deductible if used wholly and exclusively for your business.
- Legal
Running a business properly means ensuring that you adhere to the law, rules and regulations. Any legal costs you incur for your business such as lawyers fees for reviewing or writing contracts or dealing with employment issues etc are tax deductible.
- Accounting and bookkeeping
Naturally, you can deduct your bookkeeper and accountant’s costs as bona fide business expenses. This includes the cost of completing and submitting your personal self-assessment tax return. Don’t forget to add on any costs for accounting software too.
- Subscriptions
Many businesses need tools to help them manage their activities. This could include software such as CRM (client relationship management), membership of professional bodies and even subscriptions to services such as Spotify if you are a musician or Netflix if you are a filmmaker could be classed as deductible business expenses. If you aren’t sure, this is another time to check with your accountant.
- Staff costs
Even if you are a sole trader freelancer, there may be times when you need help in your business. Perhaps you are a photographer who sometimes needs an extra pair of hands on a shoot, or maybe you use a Virtual Assistant a few hours a month to help you stay on top of your emails. All staff costs if they pass the ‘wholly and exclusively’ test are allowable tax deductions.
What are creative industry tax reliefs?
Creative industry tax reliefs apply to limited companies working in some areas of the UK creative industry including film, TV, theatre, video games, orchestras and exhibitions at museums/galleries. There are some strict criteria to meet but you could get additional deductions against your Corporation Tax, so this is well worth exploring with your creative accountant.
What else should I know about small business expenses?
The above list of tax-deductible business expenses is not exhaustive. Depending on the business you run you may be able to claim other types of expenses against your tax, for example, clothing, trivial benefits and eye testing for staff. Your accountant will be able to give you a complete list of your deductibles based on your personal circumstances and if you are thinking of making a larger purchase related to your business, check first because there may be additional allowances or reliefs available for certain items like electric vehicles or other sustainability-related items. HMRC rules on business expenses and other areas of tax change continuously, so it’s a good idea to talk to someone who has experience providing accountancy services for creatives.
Getting help to work out your tax-deductible business expenses
It can be a bit confusing to know exactly what business expenses you can and can’t claim for tax purposes. Our team can help you unravel the HMRC rules, saving you time and money. Give us a call on 020 8446 8100 or email in**@pe***********.uk for a free, no-obligation chat about your creative business today and let’s see how we can reduce your next tax bill.
