We automatically set a business category for each transaction based on the merchant you made the purchase from. Anything categorised as ‘Revenue’ will count towards your taxable income. Anything categorised as one of the expense categories will be captured as an allowable expense, except for ‘Entertainment’ and ‘Other’, which we’ve assumed are not tax deductible. Anything categorised in one of the ‘Personal Payment’, ‘Business Payment’ or ‘Tax Payment’ categories will be excluded from your taxable profit.
To improve the accuracy of your tax estimation, it is important that you assign the correct category to a transaction. Should you need to, you can amend the allowable portion of the income or expense in transaction details or the online bookkeeping tool. You will find useful information under the ‘?’ icon when selecting a category to help you decide which category is most suitable and what is considered to be an allowable expense based on HMRC guidelines.