Running an eCommerce business has unique challenges, but understanding allowable expenses shouldn’t be one. Claiming these expenses can significantly reduce your tax bill, ensuring you keep more of your hard-earned money.
This blog simplifies what warrants allowable expenses for eCommerce businesses and explains how to maximise them.
What are allowable expenses?
Allowable expenses are costs essential for the day-to-day operation of your business. They can be deducted from your profits before tax, thus lowering the amount of tax you owe. The key requirement is that these expenses must be business-related.
Common allowable expenses
Office costs: Includes stationery, phone bills, and internet costs. If you work from home, you can claim a proportion of your home expenses, such as heating, electricity, council tax, and mortgage interest or rent.
Travel costs: You can claim expenses for business travel, including fuel, parking, train, or bus fares. If you use your vehicle for business, you can also claim some running costs, such as insurance, repairs, and servicing.
Clothing: These costs are allowable if you need uniforms or protective clothing for your work.
Postage and packaging: You can offset postage costs, packing materials, subscriptions for postage meters, envelopes, and delivery charges against your profits.
Advertising and marketing: Online advertising campaign fees and the cost of maintaining your website are crucial for an eCommerce business and are allowable expenses.
Stock and materials: The cost of goods you intend to sell is a significant allowable expense. This also includes packaging materials and supplies necessary for selling your products.
Home office expenses
For those running their eCommerce business from home, HMRC allows you to claim a proportion of your home expenses. For example, if your home has four rooms and one is used as an office, you could claim a quarter of your electricity bill as a business expense.
Alternatively, HMRC provides flat rates that you can use to simplify these claims without making complex calculations.
Keeping records
It’s essential to keep detailed records of all expenses you claim. This documentation is necessary to substantiate your claims and ensure they are eligible under HMRC guidelines. If you’re a sole trader or in a partnership, these records will be used for your self-assessment tax return. Owners of limited companies will use them for their company tax returns.
Making your claim
First, determine the amount you want to offset to claim these expenses. This includes distinguishing between business and personal use for dual-purpose expenses. For example, if you use a mobile phone for business and personal calls, you can only claim the portion used for business.
Once you’ve calculated your expenses, include them in your tax return. For travel expenses, you can choose between a flat rate per mile or a percentage of the total running costs to reflect business use. Detailed guidance on these rates is available on the HMRC website.
Seek help
Understanding and correctly claiming allowable expenses can significantly improve the profitability of your eCommerce business. Keeping accurate records and staying informed about what you can claim will help you maximise your deductions and keep your business finances healthy.
At James Scott, we specialise in helping ecommerce businesses manage their finances and optimise their tax position.
Contact us to find out how we can assist you with your allowable expenses and other accounting needs.
