Declaring my self-employed income
You need to submit trading accounts with your income tax return. These accounts must show:
- your gross business income
- any business expenditure
- your net profit or loss for the year
The profit or loss that you report on your accounts may have to be adjusted if any of the expenses claimed are not allowable as a deduction.
If you submit your own accounts we may ask for certified accounts that have been prepared by a qualified accountant. This will depend on the nature, turnover or profit of your business.
Download a basic profit and loss statement template (size 23 kb)
Keeping a record of your business income and expenditure
You must keep accurate records of your income and expenditure if you're self-employed. You will need these when you or an accountant prepares your accounts.
Record keeping for self-employed people
If you're self employed you will have various costs to running the business. You can take off these costs to work out your taxable profit as long as they are allowable expenses.
Expenses are allowable for tax purposes if they were incurred wholly and exclusively for business purposes. This includes:
- the cost of goods bought for the business, for example materials bought by a carpenter
- the prime costs of running a business asset, for example the cost of diesel or petrol used by a taxi driver while on the road on business
- wages and salaries of employees
- heat, light and cleaning of business premises
- repairs to and maintenance of business premises
- postage and stationery
- business telephone and rental
- bank charges and interest on business loans and overdrafts
- travel and entertaining if the sole purpose is to retain or acquire business
- legal costs of defending business rights and renewing leases of less than 50 years duration
- bad debts and specific doubtful debts
- protective clothes necessary for the business
Expenses that are not allowable for tax purposes include:
- private expenditure
- clothes bought for ordinary everyday wear
- acquisition and depreciation of business assets
- your own wages or salary
- your business partner's wages or salary
- payments to charities
- travel expenses between your home and place of business
- a general (non-specific) provision against doubtful debts
- legal costs of acquiring land and buildings
- fines for breaking the law
- your own life, accident or sickness assurance
- costs of alterations, additions or improvements to business premises
Expenditure on buying, creating or improving a business asset that you keep to earn the profits of your business is capital expenditure. You can't claim depreciation in your accounts for tax but you can claim capital allowances on these items.
Capital allowances for tax explained
This is anything which would be sold in the ordinary course of the trade, and any items which are still being manufactured or otherwise being made ready for sale.
Your opening stock for the start of the year and closing stock for the year end must be recorded on your accounts.
"Own" social security contributions
Part of the social security contributions which you pay if you're self-employed are allowable as a deduction. The allowable percentage, which represents the secondary contribution, or what might be thought of as the employer's portion is 52%.