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.
These are some of the most useful expenses you can claim for your business, whether you’re starting out or up and running.
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 Expenses for Ecommerce 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:
- Claim a proportion of your total home running costs as a business expense (including gas and electric, metered water, business telephone and internet costs).
- 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.
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.
Co-Working or Virtual Office Spaces
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
Note that transport costs to and from your workspace are not allowable expenses, although business trips are (which we’ll get to later on!).
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.).
Smartphone and Internet
If you use your personal phone for business use like 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 use).
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.
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.
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.
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
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
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.
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
- Premiums paid for business-related insurance
- Legal fees involved in setting up or maintaining your business
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.
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.
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.