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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 2 National Insurance contributions: Small Earnings Exception: How Net Profit is calculated: Admissible expenses: General

The list which follows and the information contained in NIM21012 et seq. is to help you advise the applicant about what might be allowable as a deduction in computing profits. The applicant should carry out the actual calculation, however.

Unless the application is from a newly self-employed person, it is not usually necessary to calculate a net profit figure. Where, however, a Self Assessment and/or a Profit and Loss Account is not available, the following are examples of admissible expenses, subject to an adjustment, where appropriate, on account of private of domestic use (See later). The list is not exhaustive but serves as a guide in relation to any other item claimed as an expense

  • Advertising costs (but the cost of a permanent advertisement such as a hoarding attached to the business premises is excluded. This would be a capital rather than a trading expense).
  • Audit, accountancy and bookkeeping charges.
  • Bad debts written off, provided that they are trade debts and not loans.
  • Bank charges (interest and commission).
  • Cleaning/laundry.
  • Cost of debt collection.
  • Depreciation (reducing value of vehicles, equipment, fixtures, fittings).
  • Discounts allowed (by the trader as a rebate or reduction of the total sale price to encourage prompt payment of an account. They are a loss to the business and so count as an operating expense).
  • Heating and lighting.
  • Hire charges/leasing of equipment.
  • HP interest (but not the basic cost of the item).
  • Insurances.
  • Legal costs, eg recovering debts, employees’ contracts, disputes about trading contracts or breach of contracts.
  • Mortgage interest on the business premises.
  • Motoring expenses.
  • Packaging of materials.
  • Postage.
  • Printing and Stationery.
  • Professional charges.
  • Protective clothing/overalls.
  • Purchase/materials (the cost of goods bought for resale and of materials for manufacturing: normally shown in the Trading Section of the Trading and Profit and Loss account in assessing gross profit.
  • Rates and water rates on business premises but not Council Tax.
  • Renewals - this can include the cost of small items which might otherwise be regarded as capital expenditure, such as linen, crockery, cutlery and replacement of worn out tools by similar tools.
  • Rent.
  • Repairs to business premises, plant equipment, etc.
  • Sales promotions (eg trading stamps).
  • Sundry expenses (miscellaneous small payments which do not warrant a classification of their own).
  • Telephone charges.
  • Theft (losses due to theft by staff or members of the public).
  • Travel and hotel expenses on business trips aimed at obtaining business.
  • Wages of employees and secondary National Insurance contributions.