You can subtract your self-employed 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.
This guide is specifically for sole traders and the self-employed, and can also apply to company directors. If you run a limited company, then the expenses process is slightly different – we have a guide for that too.
As mentioned, you can’t subtract all of your self-employed expenses. HMRC has clear rules on 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) helps make 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.
Calculating your tax deductible expenses means you can get immediate tax relief as it reduces the tax you owe on your business profits.
The Self Assessment tax deadline for the 2022-23 tax year is 31 January 2024.
But even though the deadline is in January, you can complete your tax return any time after the start of the new tax year on 6 April. Completing an early tax return can help you minimise the risk of mistakes and make sure that you’re claiming all the allowable expenses possible.
Office expenses, travel, marketing costs, and even business insurance all count as business expenses. Keep reading to understand how you start claiming your expenses on your tax return.
And watch the video below for some quick tips on the self-employed expenses process.
When you’re completing your tax return, there are certain costs that usually count as allowable business expenses.
Types of expenses you can claim as allowable expenses on your tax return include:
You can claim business expenses for items that you’d usually use for less than two years. This includes business stationery like:
You can also include business equipment that you’ll keep for a longer time, like computers, printers, and other computer software – but you may have to claim these as capital allowances if you don’t use cash basis accounting.
You can claim expenses for:
You can’t claim expenses for buying or building your business premises.
It’s also possible to claim some working from home expenses on your tax return. For example, if you've started a home business, 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:
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.
You can claim business-related car or van costs on your tax return, including:
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). You claim other types of vehicle, like vans, as allowable expenses.
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.
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:
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.
You can include the cost of business insurance, for example:
There’s more information about this on our FAQ pages.
You can claim for the cost of marketing, including newspaper advertising, directory listings, mailshots, free samples, and website costs.
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.
Employee and staff salaries count as allowable expenses, as do:
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.
You need to rely on your tax records when calculating your allowable expenses – the figures will be unique to your business.
It’s a case of adding up your expenses from your bills and receipts, so it’s important that you keep them all, otherwise you might miss out on a claim.
Calculating expenses will also depend on whether you’re using cash basis or traditional accounting. Using cash basis accounting, you record expenses when you pay them. But with traditional accounting, you record expenses when you receive the bill or receipt.
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 proofs 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. HMRC says that you need to keep tax records for at least five years after the 31 January deadline of the relevant tax year.
Read about how to fill in your tax return.
HMRC hosts free, regular ‘talking points’ meetings and webinars, 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.
The rules are different for limited company expenses. If you fall into this category, switch to our guide to allowable expenses for a limited company.
Directors of limited companies can claim certain allowable expenses too. As you’re effectively considered an employee, any expenses outside of your salary you pay yourself is treated as a benefit in kind.
For example, if you have a company car then you must claim it as a benefit in kind on your personal Self Assessment tax return. If it’s also used for personal journeys then you’ll need to work out the proportion used for business purposes.
As another example, if you buy something for your business out of your own money, then this will count as a director’s loan and should be outlined on your company’s P11D form. And again, this would be recorded as a benefit in kind on your Self Assessment.
Tax is particularly complex for limited companies so it’s always best to speak to a professional if you’re unsure of anything.
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.
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
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