Allowable business expenses

Every pound of allowable expense reduces your taxable profit — and therefore your tax bill. Getting this right is one of the most valuable things you can do as a self-employed person. This guide explains what counts, what doesn’t, and how to keep it simple.

The golden rule

An expense is allowable if it is incurred wholly and exclusively for the purposes of your business. If it’s partly personal, only the business part can be claimed.

What you can usually claim

• Cost of sales — materials, stock, raw materials
• Office and running costs — stationery, software subscriptions, phone and broadband (business proportion), website hosting
• Equipment — tools, computers, furniture; larger items may use capital allowances
• Insurance — public liability, professional indemnity, business contents
• Travel — fuel or mileage, train fares, hotels for business trips (but not ordinary commuting)
• Professional fees — accountancy, bookkeeping, legal advice
• Marketing — advertising, website costs, business cards
• Bank charges and interest on business accounts
• A fair share of home costs — for a home office, including rent, energy and broadband

The simplified expenses shortcut

Rather than working out exact proportions, HMRC allows fixed flat rates for some costs:

• Working from home — a set amount per month based on the hours you work
• Business use of your vehicle — a flat per-mile rate instead of actual fuel and running costs
• Living in your business premises — a flat rate for a home run as a business

Flat rates aren’t always the best deal — you should compare them against your actual costs. But they remove a lot of admin.

What you cannot claim

• Personal living costs — food, clothes, holidays, your own rent/mortgage (except the business proportion of home use)
• Ordinary commuting between home and a fixed workplace
• Entertainment for clients or suppliers (disallowed, with narrow exceptions)
• Fines and penalties — including most late-filing penalties
• Capital costs — not as an ordinary expense, though capital allowances apply

Keeping records

HMRC doesn’t demand a particular format, but you must keep records that show your income and expenses, normally for at least five years after the submission deadline. A spreadsheet is fine; an accounting app with receipt photos is better. Your records are your evidence if HMRC ever enquires into your return.

Claim it in the right place

Expenses are deducted on your Self Assessment return to reach your taxable profit. Work out the difference with the self-employed tax calculator, and read our how to calculate profit guide for the gross vs net picture.