How-to guide: Understanding and speeding up HMRC Categorisation

When you file your taxes and decide to itemise your business expenses rather than use the £1,000 trading allowance, HMRC asks that you break up your expenses into categories. This usually fills most tax filers with dread – to say it can be a long, drawn out process is an understatement. But it doesn’t have to be that way with Finmo. 

Get real time expense mapping with Finmo Lite or Complete

When you purchase one of our paid-for plans, Finmo automatically categorises expenses for you. Our intelligent tracking software is able to recognise each expense type by looking at its merchant description, which means we’re able to categorise around 50% of your expenses – significantly speeding up the overall process. 

The reason we can’t categorise 100% of your expenses is because sometimes merchant descriptions aren’t clear-cut, making it difficult for us to tell what the purchase-type is. But in any case, getting 50% of this automated makes things a whole lot slicker than doing it all yourself (we’re sure Self Assessment veterans will back us up on this).

What are the HMRC expense categories?

HMRC’s expense categories can generally be split up into two main bulks – those for rental income, and those for the self employed. So it looks a little something like this:

Rental Income:

  • Rent paid, repairs, insurance and costs of services provided
  • Property repairs and maintenance 
  • Costs of services provided, including wages
  • Loan interest and other financial costs
  • Legal, management and other professional fees
  • Other allowable property expenses
  • Donation
  • Other

Self Employment:

  • Costs of goods bought for resale or goods used
  • Wages, salaries and other staff costs
  • Pension contributions
  • Accountancy, legal and other professional fees
  • Advertising and business entertainment
  • Bank, credit and other financial charges
  • Car, van and travel expenses 
  • Other business expense
  • Phone, fax, stationary and other office costs 

Where to view HMRC categories in the Finmo app or web portal

If you’re using Finmo for free, you won’t be able to see HMRC categories in your app or web portal. This is because this feature is only available with our paid for plans. Interested? Here’s a breakdown of what else you’ll get:

Lite

£119

per tax year | + VAT

Access to Finmo's easy-to-use tax return portal

Chat and email access to Finmo’s tax experts to answer questions you may have

1 time review with written feedback on your tax return by a Finmo Accountant

Submission of your tax return

Complete

£199

per tax year | + VAT

Access to Finmo's easy-to-use tax return portal

A dedicated Finmo tax expert assigned to your return (accessible anytime via phone / email / chat)

Multiple reviews including a 1 to 1 phone consultation with your Finmo Accountant

Submission of your tax return

Frequently Asked Questions:

What if I don’t know which HMRC category a certain expense should go under?

That’s okay. You can either tag it to the best of your ability or leave it blank and ask us when it’s time to file your Self Assessment. We’ll be happy to give you some advice on this when the time comes.

What if I have an expense that can be put under multiple categories?

This happens often. Eating out for business is a classic example of this, as the expense can be categorised as Marketing, Entertainment or Travel. In these instances, tag the expense to the best of your ability or leave it blank until it’s time to file your Self Assessment, when we’ll help you determine which category the expense should go under.

Are there any HMRC categories I shouldn’t use?

No. If there are business expenses that belong in a category, then we recommend that you put them there. There are, however, categories from which HMRC disallows expenses. For instance, business entertainment has a very limited amount of claimable expenses. Read more about confusing expenses here, and about travel and food expenses here. 

What does ‘cost of goods bought for resale’ mean?

If you run a business where you make a physical good, you’ll need supplies. For instance, if you were a sculptor, you’ll need various materials like clay, wood and metals. These cost money and would fall under the  ‘cost of goods bought for resale’ HMRC business expense category, as you’re selling them, just in a different form – art.

What if I don’t want to buy a plan and just want my expenses?

While we’d recommend carrying out your Self Assessment through Finmo, it is possible to get your data exported if you decide to go down another route. This will be in .csv file format (or .xlsx or .pdf if you’d prefer). Along with your transactions, descriptions, dates and tags, we’ll also provide the HMRC categories if applicable. We can do this for £25 + vat – just email us at support@finmo.co.uk to get started. The reason we recommend doing your Self Assessment with us, though, is because we’re able to offer on-hand expert advice throughout the process, and can help you optimise your taxes fully at a fraction of the usual accountancy cost. Want to chat it through? We offer a free consultation to anyone who’s interested.