Every pound of legitimate business expense you claim reduces your taxable profit - and therefore your tax bill. Yet people who file their own returns routinely miss deductions they're fully entitled to. Here's what "allowable expenses" really means for the self-employed.
The golden rule
To be allowable, a cost must be wholly and exclusively for the purposes of your business. That's HMRC's test. If something is part business, part personal, you can usually only claim the business proportion.
Costs you can typically claim
- Office costs - stationery, phone and internet, business software and subscriptions.
- Travel - mileage (45p per mile for the first 10,000 business miles), train and bus fares, parking. Not your normal commute.
- Working from home - a share of your household bills, or HMRC's simplified flat rate based on hours worked.
- Stock and materials - the goods you buy to sell or use in your work.
- Staff and subcontractor costs - wages, and payments to subcontractors.
- Professional fees - your accountant, business insurance, some legal costs.
- Marketing - website, advertising, business cards.
- Clothing - only genuine uniforms or protective gear, not "smart clothes for work".
The bits people forget
These are the ones we regularly add for new clients:
- Bank charges and interest on a business account or loan.
- Use-of-home costs (surprisingly often left out entirely).
- Mileage for short local trips that never get logged.
- Trade subscriptions and professional memberships.
- A proportion of your mobile phone bill.
What you can't claim
- Your own wages or drawings (as a sole trader, taking money out isn't an expense).
- Client entertaining.
- Fines and penalties.
- Anything purely personal.
The trading allowance
If your self-employed income is very small, you may be able to use the £1,000 trading allowance instead of claiming actual expenses - whichever leaves you better off. For most established businesses, claiming real expenses wins.
Keep the evidence
Claim it, but be able to prove it. Keep receipts and records for at least five years after the 31 January filing deadline. A receipt-capture app makes this painless - snap it and forget it.
Don't leave money on the table
Most self-filers we take on were under-claiming - and the tax they were needlessly paying more than covered our fee. At TaxMag we make sure every allowable expense is captured on your Self Assessment so your bill is as low as it legally can be. Get in touch and we'll take a look.
This article is general information, not tax advice. The right expenses depend on your situation - talk to us for guidance.