Set up a profit and loss account for your business
These are all the ongoing expenses associated with running your business that you can deduct from your 'gross profit' figure on your profit and loss account to calculate a figure of 'profit before taxation'.
Legitimate business expenses for accounting purposes are:
- employee costs
- premises costs
- general administration
- motor expenses
- bad debts
- legal/professional costs
- other finance charges
- depreciation or loss - profit - on sales of equipment
- any other expenses
Note that some elements of these expenses are not allowed for tax purposes and are added back before your taxable profit is calculated.
Apportioning expenses - self-employment and partnerships
Where expenses apply partly to business and partly to non-business or personal use, you need to exclude any expenditure that relates to non-business use. For example, if you use your car for both business and private purposes, you normally work out the allowable business and non-allowable private proportions based on the mileage covered for each.
When filing invoices, remember to note any apportionment on them.
Read more on expenses if you're self-employed.