What can I claim on tax? A guide to allowable business expenses for the self-employed

You can subtract your allowable business expenses from your turnover when working out how much tax you need to pay each year.

But not all business expenses are allowable expenses, so it’s important to know what costs you can claim on your tax return.

• Self Assessment and tax resource
• How to register as self-employed with HMRC
• Going self-employed in the UK: a self-employment guide to get started
• Self Assessment tax returns: a guide for the self-employed
• How to turn a hobby into a business in 7 easy steps
• Is public liability insurance tax deductible?

Understanding allowable expenses

As mentioned, you can’t go ahead and subtract all your self-employed expenses. HMRC has clear rules around what you can and can’t include, which is why the costs that you can include in your calculation are called ‘allowable expenses’.

By defining allowable expenses, HMRC is trying to make sure that you only deduct expenses that are strictly related to your business.

Understanding which of your self-employed expenses are allowable and calculating your profit accurately is important for making sure you pay the right amount of tax.

Here’s an example:

Your business earns £25,000 in a tax year, but your allowable expenses add up to £5,000. You only need to pay tax on £20,000, which is your taxable profit.

Allowable expenses and completing your 2019-2020 tax return

The Self Assessment tax deadline for tax year 2019-20 is 31 January 2021.

Allowable expenses help you work out how much tax you need to pay – and the government has announced support measures for businesses struggling to pay due to coronavirus.

This includes a deferral in paying your Self Assessment tax in full until 31 January 2022, for bills of up to £30,000. You’ll need to use HMRC’s online Time to Pay service to apply.

Keep in mind that if you can pay your bill, you should – not least because interest will be applied to the outstanding balance from 1 February 2021.

Which self-employed expenses are allowable expenses?

When you’re completing your tax return, these are some of the costs that usually count as allowable business expenses.

Office expenses

You can claim business expenses for items that you’d usually use for less than two years. This includes business stationery like:

• phone, mobile, fax and internet bills
• postage
• stationery
• printing
• printer ink and cartridges
• computer software your business uses for less than two years
• computer software if your business makes regular payments to renew the licence (even if you use it for more than two years)

You can also include business equipment that you’ll keep for a longer time, like computers and printers and other computer software, but you may have to claim these as capital allowances if you don’t use cash basis accounting.

Business premises

You can claim expenses for:

• rent
• maintenance and repair
• utility bills
• property insurance
• security

You can’t claim expenses for buying or building your business premises.

If you run your business from home, you can include part of your home utility bills, but you need to work out the proportion of your home that’s used for business, and what proportion of the month it’s being used for business purposes.

Gov.uk gives an example method of dividing the costs by the number of rooms. Say you have four rooms in the house and you use one as an office. If your electricity bill for the year is £800, and each room uses an equal amount of electricity, you can divide the bill by four to claim £200 allowable business expenses.

If you work from home at least 25 hours a month, you can use ‘simplified expenses’, which is a flat monthly rate calculated by the government.

Travel

You can claim business-related car or van costs on your tax return, including:

• vehicle insurance
• fuel
• hire charges
• repairs
• servicing
• breakdown cover

Vehicle expenses can be difficult to calculate, so you can use ‘simplified vehicle expenses’, which is a flat rate provided by the government.

You can also include business travel by train, bus, plane or taxi, and hotel rooms and meals during overnight business trips.

Bear in mind that travel for things like meetings and site visits is included, but you can’t claim for the cost of travelling between home and work – so commuting or travelling to your business premises doesn’t count.

Also note that if you take a journey for both personal and business reasons, you must be able to separate out the business cost in order to include it.

You can’t claim for entertaining clients, suppliers and customers, or event hospitality.

Finally, if you buy a vehicle for your business and use traditional accounting, you can claim it as a capital allowance.

If you use cash basis accounting and buy a car for your business, you can claim it as a capital allowance (if you’re not using simplified expenses). Claim other types of vehicle as allowable expenses.

Stock and materials

You can include the cost of your stock, your raw materials, and the direct costs that arise from producing your goods.

You can’t claim for goods or materials bought for private use, or depreciation of equipment.

Legal and financial costs

If you need to hire a professional like an accountant, a solicitor, a surveyor or an architect for business reasons, you can include the cost in your calculation.

You can also include bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest and leasing payments. Note that if you’re using cash basis accounting, you can only claim up to £500 in interest and bank charges.

If you use traditional accounting, you can claim money that you won’t receive and don’t think you’ll ever receive (bad debt). That’s because with traditional accounting, you include this debt in your turnover. But you can’t claim for:

• debts not included in turnover
• debts related to the disposal of fixed assets, for example land, buildings, machinery
• bad debts that aren’t properly calculated – you can’t just estimate that your debts are equal to five per cent of your turnover

You can’t claim for debt in this way when using cash basis accounting, because you only record income you’ve actually received on your tax return.

Finally, you can’t claim fines for breaking the law as business expenses, or for repayments of loans, overdrafts and finance arrangements.

Business insurance

You can include the cost of business insurance, for example:

• public liability insurance
• professional indemnity insurance
• employers’ liability insurance

There’s more information about this on our FAQ pages.

Marketing

The cost of marketing including newspaper advertising, directory listings, mailshots, free samples and website costs can be claimed.

Clothing

You can include the cost of uniform, necessary protective clothing, or costumes for actors or entertainers, but you can’t include the cost of everyday clothing that you wear to work.

Staff costs

Employee and staff salaries count as allowable expenses, as do:

• bonuses
• pension contributions
• benefits
• agency fees
• employer National Insurance contributions
• training courses related to your business

Subscriptions

You can include the cost of membership to trade bodies or professional membership organisations if they’re relevant to your business, and the cost of subscriptions to trade or professional journals.

Calculating your business expenses for your tax return

When you complete your tax return, you may get the option to give a single figure for your allowable expenses or to give a detailed breakdown. If you choose to enter a single figure, you still need to work out all your expenses accurately, and keep a record of your workings in case HMRC queries your figures.

You should also keep receipts or other proof of purchase. You don’t need to include these with your tax return, but you may need to present them if you’re subject to a tax investigation.

Read about how to fill in your tax return.

Limited company expenses

The rules are different for limited company expenses. If you fall into this category, switch over to our guide to allowable expenses for a limited company.

Book a gov.uk expenses-explained session

HMRC host free, regular talking points meetings, designed to help tax agents get to grips with completing returns on behalf of their clients, as well as other issues. Have a look to see the range of sessions available.

Tax can be complicated, and you can face fines if you make a mistake on your tax return, so look at the guidelines on the government's website and seek professional advice if you need it.