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What you can and can’t claim–a tax guide for the self-employed

The South African Revenue Service (SARS) has promised to get even tougher on taxpayers with a zero-tolerance approach to non-compliance. This is why it’s so important to educate yourself about all the tax-deductible business expenses you are entitled to claim as a small business owner or freelancer.

Our article answers the following questions:

  • What deductible business expenses can I claim as someone who is self-employed?
  • Are there any particulars about different expenses that I should know?
  • What records do I need to keep?
  • Is there an easier way to keep track of everything?

What deductible business expenses can I claim as someone who is self-employed?

There’s no doubt that times are tough. Reducing your tax bill by claiming all allowable expenses is one way small business owners and freelancers can cut costs.

All businesses will have some essential running costs–from office supplies, rent, and utilities to training, entertainment, and stock. Tax-deductible business expenses are any expenses you incur in running your business and can be deducted from your overall taxable income to reduce your tax bill.

So, what can you claim?

1. Day-to-day business expenses

Day-to-day expenses include any costs incurred as part of running your business. Things like:

  • Business premises-related expenses: Rent/interest expenses, water, electricity, heating, telephone, rates/taxes, and internet. Remember that if you run your business from home, some of these expenses must be apportioned to claim a deduction for costs since only a portion of the premise is used for business activities.
  • Office equipment: Including stationery, furniture, cleaning costs, and computer software
  • Staff: Salaries and any admin costs related to the people you employ.
  • Travel and transport: Petrol, vehicle maintenance, and flights and accommodation for work-related travel
  • Clothing: This only applies to clothing you require your employees to wear and needs to be distinguishable from regular clothing, such as uniforms or costumes, in the case of an actor or stage performer.
  • Stock: Procurement, storage, and transport
  • Financial costs: Fees related to accounting, legal, and insurance
  • Promotion costs: Marketing, advertising, and the costs associated with running your business’ website

Download your free copy of the Quick Guide to Payroll Compliance 2023/24

2. Capital expenses

Unlike day-to-day expenses, capital expenses are once-off purchases of major physical goods or services that your business will use in the long term. They are usually more costly and include things like large equipment and machinery (such as tools and furniture), business vehicles, renovation costs for your office, and hardware (such as tech equipment, laptops, and phones).

3. Education expenses

Any training or further education you invest in to maintain or boost the skills you need to run your business is a business expense. This includes training and education for the people you employ.

4. Entertainment expenses

If you’re having a coffee with a potential client or you’ve organised entertainment and catering for a business meeting, these expenses are tax-deductible come year-end. But you must prove to SARS that the expense is business-related.

5. Other expenses

On top of the expenses listed above, you can claim a few additional items in certain circumstances. Such as:

  • Start-up expenses: Any costs incurred to get your business up and running before your first year of trade can be counted as an expense.
  • Assessed losses: Losses that have been made over previous years are tax-deductible.
  • Charitable donations: Charity donations can be claimed against your taxable income, provided the organisation has a Public Benefit Organisation (PBO) number and can issue you a tax certificate.
  • Retirement annuities: You are exempt from tax on contributions made while saving for retirement, up to a certain amount.

Download your free copy of the Quick Guide to Payroll Compliance 2023/24

Are there any particulars about different expenses that I should know about?

Unsurprisingly, there are some specific rules and requirements around what does and does not constitute a business expense, so you need to be mindful of what you can claim within different categories.

For example, it’s important to understand what constitutes a home office. If you’re working from the couch or dining room table, you won’t be able to claim office space as part of your deductible expenses.

This is because a home office must be

  • a separate room in the house or on the property,
  • it must be used exclusively for trade,
  • it has to be used regularly, and
  • it should be appropriately kitted out to enable your business to function.

In the case of a dining room table or couch, this most certainly is not the case.

Similarly, it’s important to understand that some assets (those that cost less than R7000) can be claimed in full, but assets that cost more than R7,000 must be written off over time.

So before you buy the most expensive office equipment thinking you can claim the whole amount, remember that if the item exceeds a certain amount, only the value the asset loses each year through wear-and-tear is tax-deductible.

By understanding these technicalities, you can guarantee that you don’t miscalculate your expenses.

What records do I need to keep?

Knowing what you can claim means nothing if you aren’t strict about record keeping because you might need to show SARS that your claims are valid.  

Records that you should hold on to include:

  • Entertainment expenses: When it comes to entertainment, you must document the particulars about the cost so that SARS can verify that the expenses are genuinely business-related. If you have a meeting with a client, make sure to note the date, who you entertained, the purpose of that entertainment, the location and cost.
  • Depreciation schedule: Remember those assets that cost more than R7,000? If you’re claiming depreciation, you have to be able to show how you calculated the amounts deducted from your taxable income, and you will also need to produce an invoice proving the purchase of the asset in question.
  • Travel claims: Any travel-related expenses–petrol, toll fees, vehicle repairs, and insurance–must be supported by a logbook that details the odometer reading at the start and end of the financial year. To differentiate business mileage from personal mileage, you must provide the details around each trip taken (date, reason for travel, distance covered) so that you can separate business and private activities.
  • Personal vs business: Speaking of which, you will likely have some overlapping personal and business expenses. It’s important to keep a clear record of everything. With an accurate understanding of which costs are business-related and which are personal, you claim the correct amount when tax season rolls around.

With this in mind, it’s a good idea to open a business bank account to keep all your business income and expenses separate from your personal ones. And remember that you’ll need to keep these records for at least five years after the relevant tax year.

Download your free copy of the Quick Guide to Payroll Compliance 2023/24

Is there an easier way to keep track of everything?

If SARS audits you and finds that you claimed non-deductible expenses, you’ll have to pay additional taxes and a penalty. To do this, you’ll have to stay on top of your finances.

If capturing data on multiple Excel spreadsheets is proving too time-consuming, consider using cloud-based accounting software, as this will save time and is more accurate than a spreadsheet populated manually. With the right software, you can import expenses and receipts and capture physical receipts digitally so that all the supporting documentation you need to verify your costs is stored in one place.

If you’re still struggling to make sense of your expenses, get advice from a professional tax consultant or accountant.

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