If you’re self-employed, such as a freelancer or sole trader, you’re allowed to deduct certain business expenses from your taxable earnings. To ensure you don’t pay more tax than is necessary, you must understand exactly what HMRC deem as ‘allowable expenses’.
With the self-assessment tax return deadline approaching, we’ve put together the following guide to help you better understand self-employed expenses and what you can claim back.
What Costs Can I Claim as Allowable Expenses?
The allowable expenses you can claim are related to the costs of running your business. Below is an overview of the more common allowable expenses:
While working in an office outside of your home, you can claim expenses on many items and bills.
- Stationery costs
- Printing costs
- Internet, landline and mobile phone bills
- Printer ink and cartridges
- Postage costs
- Computer software
You’re also allowed to include business equipment such as a computer or laptop, although these need to be claimed as capital allowances which we cover further down.
Business Premises Costs
The cost of running your business operations can quickly add up, so HMRC enables the self-employed to claim the associated expenses. They are:
- Utility bills
- Property insurance
- Repair and maintenance
If your home acts as an office, you are supposed to work out the business-related part. See below paragraph on “What Expenses Can I Claim if I’m Self-Employed and Working From Home” for more detail.
Travel and Accommodation Expenses
If you travel, you can claim related costs such as:
- Car purchase price (see below for Capital Allowances)
- Vehicle licence fees
- Car Hire charges
- Air, train, bus, and taxi fares
- Vehicle insurance
- Breakdown cover
- Car Servicing
- Accommodation and meals on business trips
However, please note that you can’t claim travel expenses between your home and place of work, driving fines, and non-business travel. So if you use a vehicle for both personal and business use, you’ll need to work out the percentage for each and only claim back the business proportion.
The government provides a flat rate known as ‘simplified expenses’ to make it easy to calculate your vehicle expenses. It can be used by sole traders but not limited companies or business partnerships within a limited company. We can also help if you need us to help submit your self-assessment tax return.
You can also include the cost of:
- Protective clothing for work
- Costumes for actors or entertainers
This is all except for clothing worn to work daily.
Hiring employees for your work will enable you to deduct a list of expenses. These are:
- Employee salaries and bonuses
- Employer National Insurance contributions
- Employer pension contributions
- Benefits such as healthcare and dental fees
- Agency fees
- Business-related training courses
The costs of hiring carers or domestic help are not part of allowable expenses.
When marketing your business, you can claim allowable business expenses for:
- Traditional advertising like newspapers and print ads
- Direct mailers
- Digital marketing and social media
- Website development and hosting costs
As for organising for event hospitality or entertaining clients, customers, and suppliers, these are not allowable costs.
Legal and Financial Costs
If your business hires accountants, legal firms, or any other professional services like a surveyor or architect, you can include the fees as part of the business expenses.
Similarly, you can claim professional indemnity insurance premiums including bank, overdraft, and credit card charges, interest on bank and business loans, leasing payments, and alternative finance payments. However, if you’re applying cash basis accounting, you can only claim up to £500 in interest and bank charges.
However, you can’t claim the legal costs of buying property and machinery except if you apply traditional accounting, in which you can claim them as capital allowances. You also can’t deduct fines for breaking the law.
Business Insurance Expenses
Your business insurance policy is also part of the list of allowable expenses, such as public liability insurance, professional indemnity insurance, and employers’ liability insurance.
Stock and Materials
The costs associated with your stocks, raw materials, and direct costs for the purposes of producing goods are allowable except if you buy goods or materials for personal use.
If you’re a member of a trade body or professional membership organisation closely connected to your business, you can claim the membership expenses. This includes subscriptions to trade or professional journals but not charity donations (except sponsorship payments), gym membership fees, or payments to political parties.
You can effectively hone your skills and knowledge for the better running of your business, as training costs are tax-deductible against your taxable income. The training course needs to be business-related and it needs to qualify as “Continual Professional Development”. That means it needs to be training that improves your knowledge and skills in your existing profession rather than training in a brand new area.
What Costs Can I Claim for Capital Allowances?
Capital allowance expense claims are only available if you use traditional accounting, not cash basis accounting, and as long as you don’t use your £1k tax-free ‘trading allowance’. You are also allowed to claim on the purchase of assets intended for business classified under plant and machinery, including:
What to note is that you can deduct part of or the total value of the item from your profits.
What Expenses Can I Claim if I’m Self-Employed and Work From Home?
Working from home is now a growing trend that will continue. In response, there are allowable expenses you can claim, but not 100%. They include:
- Council tax
- Internet and telephone use
- General maintenance costs
If you own your home, you will need need to think very carefully whether this is actually best for you. That is because, if you decide to sell your house, you could face a Capital Gains Tax bill on the office part as this will not be covered by the Private Residence Relief.
It is therefore often best to use the simplified expenses to quickly estimate your business expenses if you’re working from home and leave no capital gains tax concerns
What if You Use Something for Personal and Business?
As we detailed regarding travel expenses, you are expected to only claim the business cost portion for allowable expenses. For example, if you have a car you use for both private and business purposes, you can reasonably apportion the allowable expenses incurred for the business use. Another example is using a mobile phone, where you can separate your personal bills from the office bills before deducting.
It’s imperative for self-employed people to always keep accurate and organised records of their bills and receipts to claim the allowable expenses they’re entitled to. This is keeping in mind that the HMRC is committed to its mandate to ensure everyone complies with their tax obligations.