What expenses can you claim if self-employed?

Self-employed allowable expenses list

Every business has running costs – such as utility bills, rent, and travel expenses. If you’re self-employed, you can claim some of these running costs as allowable expenses.

There are different types of allowable expenses you can claim as a self-employed person. It’s important to get your allowable expenses right. Claiming for the wrong expenses could land you in hot water with HMRC, but then again, failing to claim your allowable expenses could mean you pay more tax than necessary.

HMRC provides a helpful self-employed allowable expenses list, which we explain below.

Home office

If you work from home at least some of the time, you could cover some of the cost towards:

• heating
• electricity
• council tax
• mortgage interest or rent
• internet and phone use

But you’ll need to find a practical way to divide the costs – you could split them up by room, or by days spent working from home.

For example – if your electricity bill is £300 per year and you have six rooms in your house including a home office, you could divide the bill by six and claim £50 as an allowable expense.

If you work from home four days a week, you could claim £28.56 as an allowable expense:

£50 ÷ 7 = £7.14

£7.14 x 4 = £28.56

Travel and transport

Travel for business, fuel, and parking all qualify as allowable expenses.

According to HMRC, the following costs can be claimed back:

• vehicle insurance
• repairs and servicing
• fuel
• parking
• hire charges
• vehicle licence fees
• breakdown cover
• train, bus, air, and taxi fares
• hotel rooms
• meals on overnight business trips

The following costs cannot be claimed back:

• non-business driving and travel costs
• fines
• travel between home and work

If you’re buying a vehicle for business use, the rules are a little more complex:

• If you use traditional accounting, you can claim the purchase of a vehicle for business use as a capital expense.
• If you’re buying a car for your business and you use cash basis accounting, you can also claim this as a capital expense – but only if you’re not using simplified expenses.

Office and general equipment

Equipment and supplies fall into two categories: allowable expenses and capital allowances, depending on how long you use them for in your business.

Stationery and printer ink are normally used for less than two years, and so can be claimed as allowable expenses. Things like phone and internet bills, and software subscriptions qualify as allowable expenses too.

Greater costs – like business premises rent, utility bills, and property insurance and security – can also be claimed as allowable expenses.

Equipment that you keep in your business for a relatively long time – like computers or printers – can be claimed as allowable expenses if you use cash basis accounting, or as capital allowances if you use traditional accounting.

You can claim allowable business expenses for uniforms, protective clothing, and costumes that are necessary for your work. Goods for resale, raw materials, and direct costs from producing goods can also be claimed for. But you can’t claim allowable expenses for depreciation of equipment or goods and materials for personal use.

You can’t claim expenses or allowances for buying business premises, but you can claim maintenance and repairs of premises and equipment. Check HMRC’s guidance on office equipment and supplies expenses to see if you need to claim it as a capital allowance or allowable expense.

Also – you can’t claim for non-business use of business premises, equipment, or resources.

Professional services

There could be times when you need to hire an accountant, solicitor, surveyor, or architect – all of which come under allowable expenses. You can also claim for any business insurance policy – such as professional indemnity or public liability insurance.

Bank, overdraft, and credit card charges can be claimed as business costs. So too can interest on bank and business loans, hire purchase interest, leasing payments, and alternative financing options (such as Islamic finance).

Note: There’s a £500 cap for claiming interest and bank charge payments if you use cash basis accounting. Fines for breaking the law, or repayment costs for loans, overdrafts, and finance arrangements can’t be claimed.

For costs associated with customers not paying you, read HMRC’s guidance on claiming for bad debts.

Staff expenses

Staff salaries and costs associated with employees all fall within allowable expenses. This includes pensions, staff training, and bonuses, as well as employers’ National Insurance.

You can also claim expenses for subcontractor costs and agency fees. But not for carers or domestic help.

Marketing and advertising

Some costs associated with marketing your business can be claimed as allowable expenses. These include newspaper adverts or directory listings, free samples, and website costs.

You can’t claim the costs of entertaining clients, suppliers, or customers. The same applies to event hospitality, which isn’t an allowable expense either.

Training and professional development

Training courses related to your business can be claimed as allowable expenses. These should help you improve the skills or knowledge you already use in your business – like a refresher course that lets you hone your craft.

Training courses unrelated to your business cannot be claimed as expenses. This includes courses that would enable you to move into a different area of business or start a new business.

Other claimable expenses

In addition to the expense categories we’ve already explored, there are a few more things you can add to your allowable expenses.

Subscriptions to trade or professional journals, and trade body or professional organisation memberships can be claimed for (so long as they relate to your business).

Self-employed people cannot claim for charitable donations, but you might be able to claim for charity sponsorships if they meet HMRC criteria.

If you use traditional accounting, you can also claim the legal costs of buying machinery as capital allowances.

If you’re using your £1,000 tax-free trading allowance, note that you can’t claim allowable expenses as part of this. The rules also differ for limited companies – check out HMRC’s guidance on company benefits and expenses for more information.

How to calculate your allowable expenses

Business expenses can be calculated exactly, or by using simplified expenses for certain costs.

Simplified expenses use flat rates instead of actual costs, and can be used by sole traders and business partners with no companies as partners. They can be applied to:

• Business costs for some vehicles
• Working from home
• Living in your business premises

You can learn more about using simplified expenses on the HMRC website.

If you’re working out exact costs, you can do this in a few simple steps:

1. Track expenses throughout the year, by keeping physical or digital records
2. Calculate the total sum of your expenses
3. Report the expenses on the correct part of your self assessment tax return

Alternatively, skip the steps with cloud-based accounting software that captures expenses for you, and shows you reports of your total expenses compared with your overall income.

Bear in mind that if you’re planning to use something for business and personal reasons, you can only claim allowable expenses for the business costs. For example, if your phone contract is £150 a year, and 50% of your calls and messages are for work, you can claim £75 as an allowable expense.

How to claim self-employed allowable expenses

Self-employed allowable expenses are claimed as part of your self assessment tax return. Simply:

• Keep records of all your expenses throughout the year
• Add up all of the allowable expenses, and put the total figure on your self assessment tax return

Or, you can skip the admin and instead use cloud-based accounting software, which automatically totals your allowable expenses. You just need to add the figure from your software’s expenses report to your self assessment tax return.

Will HMRC ask for proof of expenses?

You don’t need to send proof of expenses when you submit your income tax returns. But you do need to keep proof and records of your expenses just in case HMRC asks to see them.

How to keep track of your self-employed allowable expenses

Keeping a close eye on your self-employed allowable expenses can help you better manage your cash flow, and ensure you’re paying the right income tax.

That’s why it’s vital to have a system in place for accurately capturing self-employed business expenses – so you get the numbers right, every time. Do away with manual expense tracking, and use Xero accounting software for sole traders. Digital record keeping is also an integral part of Making Tax Digital for ITSA legislation, so getting cloud-based software in place now will ease the pressure in the future.

Making expense claims correctly is essential for compliance with HMRC rules. Find an accountant or bookkeeper in our advisor directory, who can help you work out what to claim.