Self-employed individuals are responsible for making sure they pay the right amount of tax. One way to do this is by taking advantage of allowable business expenses. These are tax-deductible expenses, which means they can be deducted from business profits when calculating taxes owed.
There are a variety of allowable business expenses, ranging from office supplies to travel costs. By being aware of these deductions, self-employed individuals can reduce their taxable income and ensure they’re not paying more tax than they should.
However, it can save self-employed individuals a significant amount of money. Thanks to allowable business expenses, self-employed taxpayers can keep more of their hard-earned money.
What Qualifies as an Expenses for Self-Employed
Generally, an expense must be necessary and directly related to your business to be deductible. This means personal expenses, such as mortgage payments or grocery bills, cannot be deducted. However, a wide range of business-related expenses can be deducted, including office supplies, travel costs, and marketing expenses.
So long as an expense is for business purposes only and directly related to generating income, it is likely to be deductible. As a result, it is vital to keep track of all of your business-related expenses throughout the year to maximise your deductions come tax time.
How can I reduce my Self Assessment Tax bill by Claiming Expenses?
Each year you must complete a self-assessment tax return if the turnover is over £1000. Complete the tax return will give you a calculation as to how much income tax and national insurance you owe.
As a Sole trader or freelancer, you must pay tax on everything over the personal allowance. By reducing the profits, the tax bill will be lower. It is essential only to claim what is allowable.
Below is an example of how it works using the personal allowance for 2022-2023, which is £12,570.
Sales throughout the tax year are £30,000, and as the tax allowance is £12,570, the taxable profit is £17,430.
If you can claim business expenses of £8,500, the taxable profit has now dropped to £8,930.
With these figures as a basic rate taxpayer in 22-23, you will pay 20%.
Self-Employed Allowable Expenses List
Here is our top 10 list of business expenses.
- Bank Charges
- Business Mileage
- General office supplies
- Home Office
- Legal and Professional fees
What Expenses can I claim?
Below are further details and other business allowable expenses you can claim and how to claim them. The rule to remember is, is it an allowable expense for the business to make a profit?
You can claim accommodation expenses if you do overnight business trips. If you are using the accommodation for business and personal reasons, you can only claim the percentage related to the business expense.
For example, you need to stay overnight for business meetings but decide to stay for an extra night. The extra night is not an allowable business expense.
Self-employed individuals can often deduct certain charges and overdraft fees on their accounts and business loans from their taxable income. The include:
- Bank overdraft and credit card fees
- Transaction fees
- Fees for bank and business loans
If you use the cash basis accounting, the maximum claim for interest and bank charges is £500.
If you use your vehicle for business purposes, you may be able to claim business mileage. The current mileage rates are 45p per mile for the first 10,000 miles and then 25p per mile.
To claim business mileage, you must keep records of your journeys, including the date, start and end point, and the number of miles travelled. You will also need to indicate what business purpose the trip was for.
Mileage claims can be a valuable way to offset a business cost, so it is worth keeping accurate records if you use your own vehicle for business travel.
If you claim mileage, you can’t claim any other expenses for the car, including, repairs, tax, MOT and insurance. You also can’t claim mileage between home and an office or regular place of work.
Business premises allowable expenses that you can claim include:
- Business Rates
There are separate rules if you work from home below.
You can claim travel for business purposes. Travel might include:
You can only claim travel and accommodation expenses if it is in relation to the business.
You can claim self-employed expenses for some work clothing. As per HMRC, it includes:
- Protective clothing needed for work
- Costumes if you are an actor or entertainer
It does not include everyday work clothing.
If you are unsure if your clothing is allowable, read the guide on Enterprise Made Simple.
Eyesight Test and Glasses
Under health and safety, if you use a computer screen for a length of time, you can reclaim the costs of an eye test.
Claiming tax relief for glasses or contact lenses has more rules to meet; they need to be for the sole use in the business and not for personal use. If you are unsure if the cost is claimable, speak to an accountant.
General Office Supplies
As a sole trader, you can claim expenses on office supplies, including:
- Printing costs
- Software and software subscriptions
- Phone and internet
There are two methods for claiming self-employed expenses for home office use.
The first is a simplified method, and the details are further down. The second method is to work out the exact costs of the property, including:
- Council tax
- Mortgage interest
- Internet and telephone
This method is more complicated, but you might be able to claim more. To calculate how much you need to work out how much of the house is for personal and business use and how much time you spend working from home. Please read our full guide on home office expenses.
Self-employed expenses include insurance premiums for running the business. The insurance that you may need to cover the company is:
- Employers Liability
- Professional indemnity
- Public Liability
- Travel – business purposes only
Hire leasing payments are tax-deductible. There are many reasons a business might go down a leasing route rather than buying equipment outright, including initial cost and getting up-to-date equipment.
Both the hire purchase interest and the amount for the equipment are allowable.
Legal and Professional costs
Most businesses require professional and legal costs. Tax allowable expenses include:
- Legal fees
Marketing costs can be a valuable way to offset business costs, so it is worth keeping accurate records if you use your own funds for marketing purposes.
It includes advertising costs, websites, promotional materials, and other associated expenses. It is vital to track these expenses carefully so you can claim the maximum amount possible come tax time.
When you purchase materials or stock for the business, these are deductible as a cost of sale on the income statement. Depending on the accounting method you use will depend on when they go into the cost of sale.
Cash basis – You record the materials when you spend the cash.
Traditional accounting – The figure is recorded when it is used. If you purchase materials in advance, they are classed as stock for the business and transferred as a cost when used.
There are two different rules for claiming office equipment costs; these are:
Cash Basis Accounting – You claim the allowable expenses when you pay them.
Traditional Accounting – You use capital allowances, which allow you to reclaim the entire cost of the asset. In the accounts, the equipment is posted to fixed assets in the balance sheet and decreased using depreciation over its useful life. Depreciation is not an allowable expense.
As Self-employed, you can’t take a salary, but instead, take drawings from the business and pay taxes on the profits.
You can, however, employ staff and claim allowable expenses on the following:
- National Insurance
- Pension costs (see below for personal pension)
You can claim expenses for various subscriptions related to your work. Subscriptions might be to a professional body for a licence to complete your work. The subscription organisation must be included in the HMRC-approved professional list.
Rather than claim a proportion of home office expenses, there is a simple version, where you can claim a fixed amount per month depending on the hours worked at home.
The rates are set by HMRC and are as follows:
|Hours of business use per month||Flat rate per month|
|25 – 50||£10|
|51 – 100||£18|
|101 or more||£26|
We have created a calculator, which is helpful if you work different hours from home each month.
Expenses you Can’t Claim as Self-Employed
The rules are complicated for self-employed, and some items are not tax-deductible, including:
Your own Salary
As a sole trader or freelancer, you take drawings from the business and pay taxes on the business’s profit. limited company
With the risks involved in being self-employed, you might take out personal insurance covers like income protection, life and critical illness. These are not claimable through the business.
Your pension is classed as a personal expense and therefore is not tax-deductible.
Assessment Tax Bill
At the end of the tax year, you will complete a self-assessment tax return, part of this is a calculation of how much you owe; this is a personal tax and not paid through the business. The taxes include income tax and national insurance contributions.
Entertaining and Hospitality
You can’t claim event hospitality or entertaining clients, suppliers and customers.
How can you keep track of your expenses throughout the year to ensure that you’re taking advantage of all the tax breaks available to you?
There are several ways to keep track of your sole trader business expenses. The most important thing is to keep receipts for everything and make sure you categorise them so you can easily find what you’re looking for later. You might want to consider using accounting software to help you keep track of your expenses, or you can use a simple spreadsheet.
As a self-employed individual, keeping track of your business expenses is essential. This not only helps you stay organised, but it can also save you money come tax time.
Accounting software makes it easy to track expenses, and many programs now offer mobile apps that allow you to record mileage and other business expenses on the go.
Claiming business expenses can be a complex process, but with the right accounting software, it can be a breeze.
One advantage of using a good accounting software package is that they include submitting the tax return online.
Pleo expense software is an excellent option for self-employed individuals because it allows you to claim expenses and get reimbursed quickly and easily. Plus, it integrates with popular accounting software like Xero and QuickBooks, making it easy to keep track of your finances.
Excel Bookkeeping Templates
It’s important to keep track of your business expenses. One way to do this is using Excel bookkeeping templates to track expenses.
At Business Accounting Basics, we have created 21 Excel templates to assist with small business accounting tasks. Some of the best ones for claiming expenses are:
Home Office Expenses
This spreadsheet will help calculate home office expenses.
Simplified Expenses Calculator
To make things more simple, use the simplified expenses calculator. Enter the number of months worked at each rate, which will calculate the year’s total.
Business Expense Template
You might pay for some of the expenses personally and then claim them back as a self-employed person. Our expense spreadsheet allows the recording of mileage and other costs.
Mileage Claim Form
The mileage claim form allows the recording of actual mileage with details of the journey.
Speak to an Accountant
If you are unsure about the self-employed expenses, you can claim always speak to an accountant. Our information is for a guide only but gives an excellent starting point into the allowable expenses you can claim.
Conclusion to claiming Self-Employed Allowable Expenses
As a self-employed individual, you can claim many allowable expenses to offset business costs and reduce your income tax bill. Keep accurate records of your mileage and business travel to make the most of the tax breaks available to you.
You can also claim home office expenses, subscriptions, and other related items. Remember that some clothing and equipment may be claimed as allowable expenses, but everyday work clothes cannot be deducted. Speak with an accountant if you have any questions about what is and isn’t deductible.
Disclaimer: The content of this website is based on our understanding of the rules. You should always seek the guidance of an accountant if you are unsure of what allowable expenses you can claim.