Permitted expenses

Conditions for deducting permitted expenses

SE151	When calculating S/E earnings in respect of an assessment period, the DM should deduct from the actual receipts any business expense that1

1.	was paid out wholly and exclusively for the purposes of the business and

2.	was paid out during the assessment period and

3.	was reasonably incurred and

4.	is an allowable expense.

1 UC Regs, reg 58 (1)

Wholly and exclusively

SE152	An expense is wholly and exclusively paid out when it has been incurred only for the purpose of the business1. Any such payment should be deducted in full, subject to DMG SE151 2. - 4..

1 UC Regs, reg 58 (1)

SE153	Where an expense has been incurred for more than one purpose, an identifiable part or proportion has to have been incurred wholly and exclusively for the purposes of the trade, profession or vocation1.

1 UC regs, reg 58(1)(b)

Permitted deductions for expenses

SE154	The deductions allowed1 when calculating S/E earnings are those deductions

1.	paid in the assessment period and

2.	wholly and exclusively incurred (or where incurred for more than one purpose, an identifiable part or portion has been wholly and exclusively incurred) for the purposes of that

2.1	trade or

2.2	profession or

2.3	vocation and

3.	incurred reasonably.

1 UC Regs, reg 58 (1)

SE155	Expenses that have been incurred unreasonably during the assessment period cannot be allowed as deductions for permitted expenses1 (see SE167-168)

1 UC Regs, reg 58 (1)

SE156	The expenses which may be allowed include

1.	regular costs such as rent or wages

2.	purchase of stock

3.	utilities, phone and travel costs (but see SE200 as appropriate)

4.	expenditure on the purchase, lease or acquisition of

4.1	equipment

4.2	tools

5.	VAT1.

Note: The above is not exhaustive.

1 UC Regs, reg 58(2)

SE157	A deduction cannot be allowed for expenditure on the purchase, lease or acquisition of a car or motor cycle1.

1 UC Regs, reg 59 (2)

SE158	In SE157 car means1 a mechanically propelled road vehicle but not a

1.	motor cycle or

2.	vehicle designed mainly for the movement of goods or burden of any description or

3.	vehicle of a type not commonly used as a private vehicle.

1 UC Regs, reg 53; Capital Allowances Act 2001, s 268A

SE159	In SE157 motor cycle means1 a mechanically propelled vehicle, not being an invalid carriage, with less than four wheels and the weight of which unladen does not exceed 410 kilograms.

1 UC Regs, reg 53; Capital Allowances Act 2001, s 268A

SE160 – SE162

Expenses for both business and private use

SE163	If expenditure is for both business and private use the claimant should apportion the cost where applicable in reference to any apportionment agreed with HMRC or based on the claimant’s own judgement. Only the portion of the expenditure that is wholly attributable to the business can be deducted.

SE164	It is a common practice for a S/E person to put private expenses through a business account. If a set of accounts has been submitted as evidence of expenses the DM should establish the amount of the expenses paid out for the business.

SE165	The DM should normally accept the evidence of

1.	the S/E earner or

2.	an accountant or

3.	any apportionment already agreed by HMRC for tax and contribution purposes1.

1 R(FC) 1/91; R(IS) 13/91

SE166

Incurred unreasonably

SE167	The term “incurred unreasonably” is not defined in legislation. It should be given its ordinary everyday meaning. To be reasonably incurred an expense must be

1.	appropriate to the business and

2.	necessary to the business and

3.	not excessive.

The DM should consider the nature of the business, level of trading and if there are any employees.

SE168	To determine what is reasonable the DM should have regard to the circumstances of each individual’s case1, including the level of the person’s earnings2.

1 R(P) 2/54; 2 R(G) 1/56

SE169	If expenditure on a particular item is necessary to enable the person to run the business, the whole of that expenditure may be a deductible expense unless there is evidence that it is excessive1.

1 R(G) 7/62

Example

Simon is a painter and decorator requires transport in order to travel to jobs and carry his equipment and materials. He can use his car for this but decides to purchase a small second hand van because he wishes to keep the car for family use. The cost of the van is a deductible expense because it is appropriate and necessary to the business and is not excessive.

SE170	If the DM is not satisfied that the whole of an expense is reasonably incurred only the part that is considered to be reasonable should be allowed as a deduction against gross profits.

Regular costs

SE171	If the conditions in SE151 1. - 3. and SE152 – 153 are met, all day to day expenses of a business are allowable, including1

1.	rent of business premises

2.	employee’s wages before any deductions, including wages payable to a partner, but not a business partner

3.	cleaning of business premises

4.	accountancy fees

5.	employer’s contribution to an employee’s pension scheme

6.	employer’s secondary Class 1 SS contributions

7.	heating and lighting

8.	hire or rental costs

9.	income spent on the repair of a business asset

10.	legal fees for the running of the business

11.	payment in kind for work done for the business - the monetary value is allowed

12.	council tax, water charges and insurance premiums on the business premises

13.	stationery

14.	stock purchases

15.	advertising

16.	telephone bills

17.	sundries

18.	transport, for example business use of the car including petrol costs, road fund license, insurance and servicing

19.	VAT.

This list is not exhaustive. The DM must be satisfied that all expenses have not been incurred unreasonably (see SE167-170).

1 UC Regs, reg 58(2)

SE172 – SE179

Partner’s earnings from the business

SE180	The earnings of a partner (but not a business partner) who is employed in the business should be allowed as a business expense if the expense has been incurred reasonably. The wage should not be added back to the business accounts to offset any loss.

Example

Rose runs a dress-making business from home. She is in receipt of UC. Her business is making a loss of £50 per week. The accounts show that Rose pays her husband £45 per week for book keeping and other tasks. The DM is satisfied that the amount paid to her husband is a reasonable expense.

For UC purposes Rose reports their income as

Rose	NIL

husband	£45

total	£45 per week.

VAT

SE181	A S/E person who is registered for VAT is required to submit three monthly returns to HMRC showing amounts of

1.	VAT collected from customers - known as output tax and

2.	VAT paid by the S/E person to suppliers - known as input tax.

If 1. exceeds 2. the S/E person pays the difference to HMRC. If 2. exceeds 1. the S/E person receives the difference from HMRC.

SE182	Where

1.	a business is registered for VAT and

2.	in the assessment period the amount paid to HMRC is greater than the amount received in the same period

the difference should be taken into account as an expense1. This is the amount that SE181 1. exceeds SE181 2..

Note:	VAT can also be a gross receipt of the business.

1 UC Regs, reg 58(1)(a)

SE183 – SE189

Deductions for mileage and use of home as business premises

SE190	A permitted expense can be made as a flat rate deduction where a person is carrying on a trade, profession or vocation and incurs expenses in relation to the use of

1.	a motor vehicle or

2.	accommodation occupied as their home1.

1 UC Regs, reg 59(2) & (3)

SE191	The flat rate deduction is made from the actual receipts in the assessment period1.

1 UC Regs, reg 59(2)

Mileage

SE192	The flat rate deductions for mileage covered in the assessment period is

1.	45 pence per mile for the first 833 miles and

2.	25 pence per mile for every mile in excess of 833 miles

in respect of a car, van or other motor vehicle (but not a motorcycle)1.

1 UC Regs, reg 59(2)(a)

SE193	The flat deduction for mileage covered in the assessment period by a motorcycle is 24 pence per mile1.

1 UC Regs, reg 59(2)(b)

SE194	Where a deduction is made in respect of mileage in an assessment period then no other deduction can be made as a permitted expense with regards to the

1.	acquisition or

2.	use

of a motor vehicle during that assessment period1.

Note:	If the motor vehicle is a car or motor cycle then this is the only deduction allowed for the acquisition or use of that vehicle.

1 UC Regs, reg 59 (2)

SE195 – SE199

Use of the home

SE200	A person may use the accommodation occupied as the home as part of their business. Where a person uses the home for income generating activities related to their self-employment then a deduction can be made as a permitted expense. The amount of deduction depends upon how many hours in the assessment period that a person made use of their home for income generating activities. This deduction is instead of the actual expenses incurred in the use of the home1.

1 UC Regs, reg 59(3)

SE201	Income generating activities include

providing services to a customer

Time spent on preparing a businesses' own annual accounts, cash income calculations or tax returns and

3.	action to secure business (such as sales and marketing)1.

1 UC Regs, reg 59(3)

Example

Wanda is an artist and specialises in portraits. When Wanda is commissioned to do a work, she often does most of the sketching and painting at home. The hours of sketching and painting that she does in an assessment period are hours of income generating activity.

SE202	Income generating activities do not include using the home for

1.	storage

2.	general business administration

3.	being on call or available to undertake work.

Example 1

Roger is a taxi driver and has his own private hire business. The hours that Roger is at home waiting for customers to ring him to book a journey do not count as hours of income generating activity.

Example 2

Scott has a market stall selling DVDs, CDs and computer games. When the market is not open, Scott stores his stock in a spare room at home. The storage of his stock is not an income generating activity.

SE203	The flat rate deduction is

1.	£10 for at least 25 hours but no more than 50 hours

2.	£18 for more than 50 hours but no more than 100 hours

3.	£26 for more than 100 hours

in an assessment period1.

1 UC Regs, reg 59(3)

SE204 – SE209

Personal use of business premises

SE210	Where a person occupies premises which is used by them mainly for their self-employed work but also lives in it as their home, the deduction for permitted expenses which can be made is the amount that would be allowed if the premises were used wholly and exclusively for that self-employed work but reduced by an amount dependant on the number of people also making use of those premises1.

1 UC Regs, reg 59(4)

SE211	The rate of the reduction in respect of the assessment period is1

1.	£350 for one person

2.	£500 for two persons or

3.	£650 for more than two persons.

1 UC Regs, reg 59(4)

Example 1

Fred is S/E and works from home as a music teacher. He uses the downstairs of the house as a music studio and lives upstairs. When reporting his income for the purposes of his award of UC, Fred says that he incurred S/E expenses relating to the home of £800 in his most recent assessment period. Fred shares his home with his civil partner, Andre. Andre is not involved in Fred’s business. Fred claims £800 in permitted expenses and reduces this amount by £500 as both he and Andre occupy the premises which is utilised for both personal and business use.

Example 2

Victoria is a pub landlady. The downstairs of the building where she lives is the pub and she lives upstairs with her husband and two children. When reporting her expenses for her award of UC, Victoria reports expenses of £3,500 for the latest assessment period. Victoria decides that trying to apportion these expenses between the pub and home upstairs is not possible but is not sure what to claim. The DM decides that the permitted expenses should be reduced by £650 because there are three or more people occupying the premises which is utilised for both personal and business use.

SE212 – SE219