Self-Employed Allowable Expenses
As a self-employed individual, paying the right amount of tax is your responsibility. But did you know you can lower your tax bill by claiming your allowable business expenses? You can deduct these costs from your business profits, reducing the income you’re taxed on.
You can claim many things, including office supplies, travel expenses, etc. By understanding these deductions, you can keep more of your hard-earned money in your pocket and avoid overpaying your taxes.
Claiming allowable business expenses can save self-employed individuals a significant amount of money. These deductions reduce taxable income, ultimately allowing them to retain more earnings.
What Qualifies as Expenses for Self-Employed
Generally, an expense must be necessary and directly related to your business purposes to be deductible. Personal expenses, such as mortgage payments or grocery bills, cannot be deducted. However, many allowable business-related expenses, including office supplies, travel costs, and marketing expenses, can be deducted.
So long as an expense is for business purposes only and directly related to generating income, it will likely be deductible. As a result, keeping track of your business-related expenses throughout the year is vital to maximising your deductions come tax time.
How can I reduce my Self Assessment Tax bill by Claiming Expenses?
You must complete a self-assessment tax return yearly if the turnover is over £1000. Complete the tax return to calculate 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 2023-2024 or 2024-2025, which is £12,570.
Sales throughout the tax year are £30,000, and you can claim business expenses of £8,500, with a tax allowance of £12,570.
The taxable profit is £30,000 – £8,500 = £21,500.
You would, therefore, pay 20% tax on £21,500 less tax allowance. £21,500 – £12,570 = £8,930.
If your profits are more than £12,570 a year, you must pay Class 4 National Insurance contributions. 6% on profits of £12,570 up to £50,270 – 2% on profits over £50,270.
See our self-employed tax calculator for an estimate of how much tax you will pay.
Self-Employed Allowable Expenses List UK
Here is our top 10 list of common business expenses.
- Accommodation
- Bank Charges
- Business Mileage
- General office supplies
- Home Office
- Insurance
- Legal and Professional fees
- Marketing
- Materials
- Subscriptions
What Expenses can I claim?
Below are further details and instructions on how to claim other business-allowable expenses. The rule to remember is: Is it an allowable expense for the business to make a profit?
Accommodation Expenses
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.
Bank Charges
Self-employed individuals can often deduct 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
The maximum interest and bank charges claim is £500. You can’t claim for loan repayments, only the interest.
Business Mileage
You can claim business mileage if you use your vehicle for business purposes. The current mileage rates are 45p per mile for the first 10,000 miles and then 25p per mile. However, you can’t claim mileage to and from your standard place of work.
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 must also 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, parking fines and insurance. You also can’t claim mileage between home and an office or regular place of work.
Business Premises
Business premises allowable expenses that you can claim include:
- Rent
- Business Rates
- Utilities, including gas, water and electricity bills
- Security
- Cleaning
There are separate rules below if you work from home.
Business Travel
You can claim travel for business purposes. Travel might include:
- Trains
- Bus
- Flights
- Taxis
You can only claim travel and accommodation expenses related to the business.
Clothing
You can claim self-employed expenses for some work clothing. As per HMRC, it includes:
- Uniforms
- 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 long time, you can reclaim the costs of an eye test.
There are more rules to meet when claiming tax relief for glasses or contact lenses. They need to be for the sole use of 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:
- Stationery
- Printing costs
- Software and software subscriptions
- Postage
- Phone, mobile and internet bills
Home Office
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:
- Rent
- Council tax
- Mortgage interest
- Internet and telephone
- Utilities
This method is more complicated, but you might 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.
Insurance
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
You can not claim personal insurance for any coverage if you are off sick.
Leasing Payments
Hire leasing payments are tax-deductible. A business might go down a leasing route for many reasons 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, legal and financial costs. Tax allowable expenses include:
- Legal fees
- Accountants
- Bookkeepers
- Surveyors
Marketing Costs
Marketing costs can be a valuable way to offset business costs, so it is worth keeping accurate records if you use your funds for marketing.
It includes advertising costs, websites, promotional materials, and other associated expenses. Tracking these expenses carefully is vital to claiming the maximum amount possible when tax time comes.
Materials
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.
Office Equipment
There are two different rules for claiming business 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. The equipment is posted to fixed assets in the balance sheet in the accounts and decreased using depreciation over its useful life. Depreciation is not an allowable expense.
Salaries
As a self-employed person, you can’t take a salary; instead, you can take drawings from the business and pay taxes on the profits.
You can, however, employ staff and claim allowable expenses on the following:
- Wages
- Bonus
- Tax
- National Insurance
- Pension costs (see below for personal pension)
Subscriptions
You can claim expenses for various subscriptions related to your work. Subscriptions might be to a professional body for a licence to complete your job. The subscription organisation must be included in the HMRC-approved professional list.
Simplified Expenses
Rather than claim a proportion of home office expenses, there is a simplified expense method, where you can claim a fixed amount per month depending on the hours worked at home.
HMRC sets the rates 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 Salary
As a sole trader or freelancer, you take drawings from the business and pay taxes on the business’s profit.
Personal Insurance
With the risks involved in being self-employed, you might take out personal insurance coverage such as income protection, life and critical illness. However, these are not claimable through the business.
Pension
Your pension is classed as a personal expense and, therefore, is not tax-deductible.
Assessment Tax Bill
You will complete a self-assessment tax return at the end of the tax year. Part of this is a calculation of how much tax you owe, a personal tax 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.
Accounting Software
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 it can be a breeze with the right accounting software.
One advantage of using a good accounting software package is that it includes submitting the tax return online.
Expense Software
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 essential to keep track of your business expenses. One way to do this is by 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 simplify things, use the simplified expenses calculator. Enter the number of months worked at each rate, and the calculator 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 mileage and other costs to be recorded.
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 self-employed expenses, you can always speak to an accountant. Our information is for a guide only but provides an excellent starting point for determining the allowable expenses you can claim.
Conclusion to claiming Self-Employed Allowable Expenses
As self-employed, 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.
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 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.
