Here is a little more information on how expenses affect your tax calculation and how they affect your financial borrowing eligibility.
This is especially of interest if you’re considering applying for a mortgage within the next two or three years.
Expenses reduce the amount of tax and national insurance you are charged.
As most taxpayers pay at the combined rate of 29%, if you claim £100 in expenses, you save £29 in tax and N.I.
You do not receive a full refund of the expenses you claim.
If you purchase a drill for £200 and rightly claim £200 as an expense, you do not receive a £200 refund; otherwise, HMRC would essentially be purchasing the drill.
Instead, you save £58 in tax and N.I (29% of £200)
However, expenses also reduce your net profit, which a lender will review to consider your borrowing eligibility.
A lender typically looks to lend between 3-4 times your net profit, averaged over the last two or three tax years.
For example, if you claim £1,000 in expenses, it would reduce your net profit by £1,000 you would save £290 in tax and N.I.
However, it would reduce the amount you could potentially borrow by between £3,000 and £4,000, depending on the lender.
