Allowable Expenses for the Self-Employed: The Full List

The golden rule: wholly and exclusively

An expense is allowable if it is incurred wholly and exclusively for the purposes of your trade. That is the test HMRC applies to every claim. Costs with a genuine business purpose reduce your taxable profit; costs that are really personal do not — and where a cost is mixed, you can usually claim the identifiable business proportion.

Every pound of allowable expense you fail to claim is profit you pay tax and National Insurance on unnecessarily. Most self-employed people we take on have been under-claiming, not over-claiming.

Premises and working from home

If you rent business premises, the rent, business rates, utilities, insurance and repairs are all allowable. Most sole traders, though, work at least partly from home — and there are two ways to claim for that.

• Simplified expenses — a flat monthly rate set by HMRC based on how many hours a month you work from home; no receipts or calculations needed
• Apportionment — a share of your actual household costs (heating, electricity, council tax, rent or mortgage interest, broadband) based on the rooms used for business and the time they are used

The flat rate is easier; apportionment usually produces a bigger claim for anyone working from home full-time. It is worth calculating both once a year and using whichever is higher.

Travel, vehicles and mileage

Business travel is allowable: trips to clients, suppliers, sites and training, including train fares, parking and reasonable hotel and subsistence costs when working away. What is never allowable is ordinary commuting — travel between home and a regular fixed place of work.

For your vehicle you again have two options. The simplified mileage method pays a fixed rate per business mile (a higher rate for the first 10,000 miles each year, lower thereafter), covering fuel, insurance, servicing and depreciation in one figure. Alternatively you can claim the business proportion of actual running costs plus capital allowances on the vehicle. Whichever you choose, keep a mileage log — it is the first thing HMRC asks for.

Equipment, people and professional costs

• Equipment and machinery — computers, tools, office furniture and similar usually qualify for capital allowances, with the Annual Investment Allowance giving full relief in the year of purchase for most spending
• Stock and raw materials — the cost of goods you buy to sell or use in your work
• Staff and subcontractors — wages, employer National Insurance, pension contributions and subcontractor payments
• Professional fees — accountancy, legal fees for trade matters, and professional indemnity or public liability insurance
• Subscriptions — trade bodies and professional memberships relevant to your work, and trade journals
• Marketing — websites, advertising, business cards and directory listings
• Bank and finance costs — business bank charges and interest on business borrowing
• Phone and internet — the business proportion of your bills, apportioned on a reasonable and consistent basis
• Training — courses that update or maintain existing skills for your current trade

What you cannot claim

Some costs are disallowed no matter how business-flavoured they feel, and claiming them is a reliable way to attract HMRC attention.

• Client entertaining — meals, drinks, hospitality and event tickets for customers or contacts are never deductible
• Ordinary commuting — travel between home and a regular workplace
• Everyday clothing — suits and ordinary clothes are not allowable even if worn only for work; uniforms, protective clothing and costumes are the exceptions
• Fines and penalties — parking fines and HMRC penalties
• Personal spending — gym memberships, ordinary childcare and the personal share of any mixed cost

Claim everything you are entitled to — and nothing you are not

Good expense claims come from good records: a business bank account, receipts captured as you go, and bookkeeping software that categorises costs correctly through the year rather than in a January panic.

Bayar Hughes & Co, chartered certified accountants in New Eltham, London SE9, has prepared self-employed accounts since 1991. We routinely find allowable costs clients did not know they could claim — and quietly remove the ones that would cause trouble. Call +44 7441 347796 and let us check what your tax bill should really be.