Allowable expenses when you’re self-employed

Not claiming allowable expenses is one of the most common mistakes when completing a tax return. But it can also be a costly error that leaves you with an inflated tax bill.

A few years ago, The Telegraph reported that 57% of freelancers and self-employed people forget to claim purchases under £10 – missing out on a whopping £24 million of tax breaks every year.

To help you get it right and claim everything you’re entitled to, this guide covers all you need to know about allowable expenses when you’re self-employed.

What are allowable expenses?

Allowable expenses are costs that are essential for keeping your business running. These costs are tax deductible, which means they can be subtracted from your business turnover so you only pay tax on the remaining profit.

For example, your annual turnover is £50,000. Throughout the year, you spent £10,000 on allowable expenses. You pay tax on the remaining £40,000.

Who can claim allowable expenses?

You can claim allowable expenses if you’re self-employed, a freelancer or a sole trader. But you can’t claim them if you use your £1,000 tax-free ‘trading allowance’.

There are separate rules on allowable expenses for landlords and tax-deductable purchases for limited companies.

What can I claim as an allowable expense?

HMRC has a full list of costs you can claim if you’re self-employed. This list includes things like:

Office, property and equipment

Stationary
Postage
Software your business uses for less than 2 years
Phone, internet and utility bills
Rent for business premises

Car, van and travel expenses

Vehicle insurance and breakdown cover
Fuel
Parking
Train, bus, plane and taxi fares
Hotel rooms for business trips

You can't claim for travel between home and work or for things like speeding or parking fines.

Clothing expenses

Uniforms
Protective clothing
Costumes for actors or entertainers

You can't claim for everyday clothing, even if you wear it to work.

Staff expenses

Salaries, bonuses and benefits
Pensions
Agency and subcontractor fees
Employer’s National Insurance contributions
Training courses related to your business

Reselling goods

Stock
Raw materials

Legal and financial costs

Accountant, solicitor, surveyor and architect fees
Interest on business loans
Bank, overdraft and credit card charges
Business insurance

You can't claim any fines for breaking the law. And when it comes to loans and overdrafts, you can't claim your regular repayments – only additional charges or interest.

Marketing, entertainment and subscriptions

Adverts
Website costs
Trade body or professional organisation membership fees

You can't claim for entertaining clients, suppliers and customers.

Allowable expenses and personal purchases

Only business costs can be claimed as allowable expenses – so you can’t claim any private purchases. If you buy something that’s used for both business and personal reasons, only the portion that’s used for work can be claimed.

For example, you use the same phone contract for both work and personal calls. Your monthly phone bill is £60, with £40 spent on business calls and £20 for private use. You can only claim £40.

Can I claim allowable expenses if I work from home?

If you’re self-employed and work from home, you might be able to claim some of your costs for things like heating, electricity, internet, Council Tax and rent or mortgage interest.

Unless you use simplified expenses, you’ll need to find a system for splitting the costs between business and personal use, such as the number of rooms used for business or the time you spend working at home.

For example, you live in a flat with a kitchen, living room, bathroom, bedroom and home office. You only work in the home office – one out of five rooms. Your monthly electricity bill is £100. You divide £100 by five to get £20, which can be claimed as an allowable expense.

How do I claim allowable expenses?

When you complete your Self Assessment tax return, you’ll find a section for reporting your allowable expenses. Rather than listing each expense or providing subtotals for different categories, you’ll only need to report the total for the tax year.

It’s important to keep full, accurate records of all your business expenses. This will help you accurately work out your yearly total, and can provide evidence of your costs in case HMRC decides to check your tax return. You have a legal obligation to keep these records for at least five years.

Allowable expenses vs capital allowances

Allowable expenses and capital allowances are both business purchases that can be deducted from your turnover to calculate your taxable income. But they’re not interchangeable.

While allowable expenses are generally essential day-to-day purchases that are used for a short time, capital allowances are assets that are useful to your business over an extended period.

Certain expenses – such as cars, computers and printers – could be either allowable expenses or capital allowances, depending on whether you use cash accounting or traditional accounting.