Setting up your own ecommerce business is an exciting and challenging time. So it’s well worth knowing what tax deductions you can claim if you want to make the right business choices. Understanding what business expenses you can claim, such as office and equipment costs, legal and financial expenses, and costs associated with using a home for business, is crucial to managing your tax liabilities effectively. Knowing which expenses qualify as legitimate business costs can help you reduce your overall tax burden.
These are some of the most useful business expenses you can claim for your business, whether you’re starting out or already established.
As dedicated ecommerce accountants, we deal with expenses for online businesses every day, so if you’re unsure about any of the things in the list, please get in touch.
Allowable Ecommerce Expenses for Businesses
Your Home Office
With more and more ecommerce businesses operating fully from home, it’s important to consider how you can claim deductions for using part of your home as your workplace:
You can claim a proportion of your home running costs as a business expense (including gas and electric, metered water, business telephone, and internet costs).
Personal expenditure, such as utility costs and food, can be deducted from actual business costs on tax returns, while other expenses like mortgage interest must be reported separately.
Charge your business rent if you operate as a limited company.
Claim for costs if you alter your home or build an office conversion or extension.
Or claim a fixed fee per month of up to £26 per month.
Business calls made from a home phone can be claimed if the contract is in the company’s name.
Even if you only work partly from home, you can still claim some of these costs as tax relief, so it’s worth looking into. Recording all expenses incurred is crucial for accurate tax deductions.
Co-Working or Virtual Office Spaces as Business Premises
Suppose you prefer to run your office from a co-working space or virtual office. You could still be eligible to deduct certain office running costs, including:
The cost of your rent
Office Supplies
Equipment you use
Utility bills
Additionally, expenses related to renting specific business premises can be claimed as part of your expenses business.
Note that transport costs to and from your workspace are not allowable business expenses, although business trips are (which we’ll get to later on!).
Only expenses related to your business activities can be claimed.
Training Courses, Mentoring & Educational Books
Starting an ecommerce business requires a broad range of skills, but luckily there are a huge range of resources out there to learn your craft, all of which are allowable expenses:
Ecommerce training programs and mentoring.
Informational books and guides.
Subscriptions to relevant publications (magazines etc.).
Only training courses and resources directly related to your business activities can be claimed as an allowable expense.
Smartphone and Internet
If you use your personal phone for business purposes, such as customer service or contacting suppliers, that portion of your bill can be deductible (say 1/3rd if this is the amount you use it for business purposes). Business calls made from a personal phone can also be claimed if the contract is in the company’s name.
Alternatively, if you operate as a limited company, they could pay the cost of your smartphone. Remember you’ll need to take out a business contract rather than a personal one though for it to be eligible as a 100% expense.
Because your ecommerce business can’t function without an internet connection, that bill is also deductible.
However, if you work from home and use the connection for personal use as well, you’ll need to work out the proportion used for your business to claim on expenses.
Website Infrastructure and Software
As with your internet connection, the costs of running your online store could also be deductible.
Website expenses you could claim include:
Website hosting costs
Domain registration and renewal
Technical support costs
Hardware used to keep your website up and running
Cloud accounting software such as Xero and Quickbooks
These are all tax-deductible providing they’re for business use only. Additionally, capital allowances can be claimed for equipment and software used for business purposes.
Do you use Stripe to process payments on your website? Check out our article on Stripe Fees & VAT
Cloud Computing & Storage
Many ecommerce businesses will choose to back up their data on a cloud server, but these costs can often mount up.
Luckily for ecommerce businesses, any costs for cloud computing & storage are included as allowable tax relief.
In fact, the UK government recently announced that cloud computing costs were now eligible as R&D tax credits, which could be a good bonus for ecommerce business with large data storage costs.
Additionally, simplified expenses can be used to claim allowances for cloud computing and storage costs.
Staff & Freelance Contractors
Any costs involved with hiring an employee/s are all allowable expenses for your ecommerce business.
Alternatively, you may want to use a freelancer to design your website, or to create written or video content. These costs can also be claimed on expenses.
However, it’s worth noting that HMRC will only accept your claim if you’re using genuine freelance contractors for genuinely freelance work. This is because many businesses have in the past claimed that workers that solely work for them are freelance contractors, creating tax breaks for the company and contractor.
This practice is now much more tightly regulated thanks to the recent IR35 Umbrella Company regulation.
Additionally, when paying wages to family members working for the business, ensure these payments are documented through the business bank account to substantiate wage costs.
Office Supplies and Delivery Costs
Any business can claim for the supplies they need to run their business efficiently. These could include paper, printer ink and office equipment.
If you send stock directly to your customers instead of using dropshipping, you’ll need packaging and shipping materials. As these are necessary for the smooth operation of your ecommerce business, they’re also deductible.
In fact, most expenses related to shipping goods to customers can be claimed on expenses. These include:
Postage meter subscriptions
Postage costs
Packing materials
Delivery charges
Additionally, expenses for business such as equipment and office furniture essential for operational activities can be claimed as tax-deductible business expenses.
Travel and Business Mileage Costs: How to Claim Business Expenses
The tax rules around travel can be complex. However, if you need to travel for businesses purposes, you could be able to claim:
Transport costs including flights for international travel
Conference tickets
Hotel accommodation
Parking fees
Congestion charges
Meals, excluding entertaining clients
It is important to record all travel expenses incurred for accurate tax deductions.
If you use your car for business purposes like meeting clients or delivering packages, you can claim in the following ways:
If you’re a sole trader or a partnership, you can claim a business proportion of your vehicle’s running costs.
If you’re a limited company you can pay yourself a tax-free business mileage allowance.
You can claim a business miles allowance to cover your costs of 45p a mile for 10,000 miles then 25p per mile for all subsequent travel.
Note that buying a vehicle is no longer an allowable business expense, although leasing costs on a lease vehicle used for business use only is an allowable business expense depending on the CO2 emissions of the vehicle.
Vans are a different story however, being classed as ‘plants and machinery’, and thus a fully deductible expense as long as the vehicle is classed as a work van (no camper conversions etc.) and used for an ‘insignificant’ amount of personal use.
Recording travel expenses can significantly impact the calculation of taxable profits, ensuring compliance with tax regulations and potentially lowering your tax bill.
Business Insurance & Legal Fees
The following business-related expenses can all be claimed:
The interest paid on a credit card used for business expenses or to secure a loan
Bank charges paid on your business account
Ecommerce Accounting Services
Most ecommerce businesses will need the help of an accountant to manage their finances. The use of an accountant (or specialist ecommerce accountants) to help you run your business is tax-deductible. Understanding the tax year deadlines is crucial for accurately claiming expenses and ensuring compliance with HMRC regulations.
On top of this, any direct costs to HMRC are an allowable expense for ecommerce businesses including company registration fees.
Get in touch with Your Ecommerce Accountant today to see how we can help you improve the tax efficiency of your ecommerce business. Book a free 30 minute consultation today.
Accountants play a vital role in helping to calculate taxable profits by adjusting for various types of expenses, ensuring compliance with tax regulations.
Please note this list of allowable expenses for online businesses was accurate as of January 2022, but these often change so please consult the government website for any changes in expense allowances.
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