Empowering the Freelance Economy

Freelancers could be among small business owners that lose £5.6 billion a year in unclaimed expenses

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“Losing receipts” and “not being bothered” are two of the most popular reasons small business owners and freelancers are not claiming legitimate expenses. The thing is, if you’re self-employed, most of your business expenses can be claimed back against your tax bill each year. However, new research suggests that many small businesses aren’t sure which expenses they can claim for, potentially costing them thousands of pounds each year, Simply Business has reported.

A survey of over 1,200 small business owners by The Accountancy Partnership found that 81% don’t understand what qualifies as a legitimate business expense. The findings estimate that that around one in ten small businesses have no idea what they can and can’t expense.

1 in 10 small business owners have no idea what they can or can’t expense

Breakdown of money lost to unclaimed expenses

The survey found that 65 per cent of participants had failed to file a business expense in the past, with losses ranging from less than £100 to more than £10,000.

The survey did a breakdown of how much small business owners estimate they lose each year to unclaimed expenses:

Annual loss% of small businesses to estimate loss
Less than £10035%
£100 to £49935%
£500 to £99913%
£1,000 to £2,4998%
£2,500 to £4,9994%
£5,000 to £10,0003%
More than £10,0002%
Source: The Accountancy Partnership/Simply Business

According to a Simply Business report, while the majority of small businesses lost less than £500 due to unclaimed expenses, this could add up to a significant amount over a number of years. For example, that amount could have gone towards paying off personal debt.

The Accountancy Partnership estimates that all UK small businesses lose a total of £5.6 billion each year due to unclaimed expenses.

Which expenses are least likely to be claimed by freelancers?

Small business owners are least likely to claim expenses for:

  • work clothing
  • food and drink
  • hire purchase
  • vehicle expenses
  • premises costs

The above-listed expenses usually count as allowable business expenses. For example, you can claim business premises expenses for rent, utility bills, and property insurance. You can also claim travel expenses for vehicle insurance, fuel, and breakdown cover.

Small business owners are reminded that even strange expenses can be claimed for – as long as HMRC sees them as genuine and reasonable.

Survey respondents named the most unusual expenses they’d claimed for, including two live lobsters, a Venus flytrap plant, and a full Lederhosen outfit.

Why are freelancers failing to claim expenses?

Alongside not being sure what counts as an allowable expense, small business owners admitted to several other reasons why they failed to make a claim. These included:

  • losing receipts and invoices (43%)
  • not being bothered and not having time to claim (41%)
  • unsure whether their claim would pass HMRC’s rules (36%)
  • being worried about HMRC penalties (8%)

Are you a contractor and think you no longer have to worry about expenses?

If you are a contractor and incur expenses, you have a right to claim those back from your client or umbrella company employer. Please let either know if you are paying with direct cash/bank transaction or are placing on a personal credit card so that any fees charged to you personally are accounted for, such as interest rates.

Still confused about what expenses you can claim? ContractorCalculator has outlined some of these here.

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