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How expenses affect your rebate

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.