What allowances can I claim as self employed?
There are several different allowances you can claim as a self employed person; a Personal Allowance, capital allowance, tax-free allowances and allowable expenses.
What is a personal allowance?
A Personal Allowance affects what amount of your earnings you pay income tax on.
Your standard Personal Allowance is £12,500 before income tax is deducted, but you still need to submit a tax return. So, you only need to pay tax on earnings over £12,500. If you earn over £100,000 this will be reduced.
As a self employed person who is not a PAYE employee, you will need to submit a yearly Self Assessment tax return.
Earnings under £1,000
If you earned under £1,000 in the last tax year then you don’t need to submit a return. But, if you are already registered as self employed or a sole trader then you need to let HMRC know. The best way to do this is to give them a call.
Find out more about income tax
Tax-free allowances
There are some finances you have tax-free allowances for:
- Savings interest
- Dividends, if you own shares in a company
You might also have tax-free allowances for:
- Your ‘trading allowance’: The first £1,000 of income from self-employment
- Your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
It’s important to know that you will pay tax on any interest, dividends or income over your allowances.
Tax on savings interest
Your Personal Allowance allows you to earn interest on your savings tax-free if you haven’t already used it up with your wages or other income.
Starting rate for savings means you can earn a certain amount of interest on savings without paying tax on it, but this depends on your income.
- Your other income is below £17,500: You can get up to £5,000 of interest without paying tax on it. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
- Your other income is above £17,500: You aren’t eligible for starting rate for savings.
Personal Savings Allowance
Your Personal Savings Allowance means you could get up to £1,000 of interest and not have to pay tax on it, depending on your Income Tax band. Your tax band will be the total of all your income, plus the interest you get on savings.
| Income Tax band | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
You can check which interest is covered by your allowance on the HMRC website.
Tax on dividends
A dividend payment is made to shareholders of a company out of its profits. You will only pay tax on dividends that exceed your dividend allowance in the tax year. You do not pay tax on any dividend income that falls within your Personal Allowance
The current dividend allowance is £2,000. The tax amount you pay depends on your income tax band (which should be calculated including the amount of dividends you receive).
What can I claim as capital allowances?
A capital allowance relates to assets you’ve purchased for your business that you can claim on. You can deduct some or all of the value of the asset from your profits before you pay tax.
Capital allowances can only be claimed if you do your accounting by recording your income and expenses by the date you are invoiced or were billed.
Allowable expenses
If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit on your Self Assessment tax return as long as they’re allowable expenses.
Find out more about allowable expenses
Manage your finances with an accounting software
To help make it easier for you to identify which allowances you can claim for, use accounting software with automated reporting. You can check your reports to see your assets, expenses and more to help you prepare for your Self Assessment tax return.
Bokio accounting software lets you do your bookkeeping, and invoicing in one place. Our automated reports are a great way to prepare for your Self Assessment tax return, and manage your business finances day-to-day.
