Self Employed Expenses – Which Allowable Expenses Can You Claim?
A self-employed person in the UK will pay tax based on the profit they made in the preceding tax year. However, self-employed people can claim tax relief on certain business expenses. For this reason, it’s essential to understand which expenses are allowable business expenses for self-employed individuals.
- Self-employed people may claim tax relief on some business costs.
- These claimable expenses must be directly related to running your business.
- You’ll need to retain records of your expenses for at least 5 years.
- Self-employed home office expenses also qualify for tax credit.
- What are Allowable Expenses for the Self-Employed?
- How Do I Claim Self-Employed Expenses?
- Self-Employed Allowable Expenses List in the UK
- Self-Employed Allowable Expenses Table
- What Expenses Can I Claim When Working From Home?
- How Can I Track My Allowable Expenses?
- FreshBooks Makes Tax Preparation Simple
- Frequently Asked Questions
What are Allowable Expenses for the Self-Employed?
In the UK, self-employed allowable expenses are tax-deductible business expenses you can claim. These expenses represent the money spent on items or services used solely for the business. This ensures that self-employed individuals are only taxed on their actual profit.
Therefore, every allowable expense must specifically be a needed business expense and not a personal purchase.
How Do I Claim Self-Employed Expenses?
To claim self-employed business expenses, simply add your allowable expenses to your self-assessment tax return form. List each expense and its associated cost in the designated areas on your form. To see your taxable profits, simply subtract your total allowable expenses from your total business income before tax.
Alternatively, you can claim a flat £1,000 as a trading allowance. This flat allowance is not taxed— you won’t need to file it on your tax return. However, if you take this route, you won’t be eligible to claim any other business expenses.
13 Self Employed Allowable Expenses List in the UK
While the HMRC offers tax relief by letting sole traders claim business expenses, not all expenses are allowable. The following self-employed allowable expenses list showcases many of the expenses you can claim.
1. Office Supplies
The cost of any simple office supplies such as paper, pens, and envelopes qualify as an allowable business expense. With the increasing digitisation of the workplace, software tools for business use also qualify as “office supplies.” However, this only applies to software tools used for less than 2 years (subscription or non-subscription).
2. Business Equipment
You can claim money on any office equipment, such as computers, laptops, and mobile devices, as long as they have been used within the past 2 years. You cannot claim business expenses on small equipment purchase costs. You can also only claim equipment if you use cash-based accounting. If you use traditional accounting, you’ll need to claim capital allowances instead.
3. Business Premises
You can claim allowable expenses on your office rent and utility bills. However, you cannot claim the initial cost of the building or renovations. The initial cost and any needed renovations may qualify as a capital allowance instead.
Travel and accommodation expenses can be claimed as long as the trip was for business purposes. You may claim expenses on meals during overnight business trips but only for breakfast and evening and only within a reasonable amount. You cannot claim expenses on your daily commute from home to your workplace.
5. Professional & Financial Services
Professional fees for accountants, financial advisers, legal councils, surveyors, and bank charges can be claimed as self-employed expenses. This is only if said professional services are entirely for business purposes. Professional indemnity insurance also qualifies.
6. Stock & Materials
Any raw materials or items purchased for resale are allowable expenses for self-employed individuals. This includes pre-built resale items and the raw materials required to build new items to sell. Costs directly associated with purchasing resale goods, such as shipping costs, are also eligible.
7. Marketing & Advertising
Some marketing fees are allowable for self-employed expenses. You can claim the costs of running your website, advertising in newspapers or directories, free samples, sending post advertisements, and subscribing to professional publications. You cannot claim business expenses on running events, entertaining clients, or payments to political parties.
You can claim work-related clothing such as uniforms, protective gear, or costumes as an entertainer. You cannot claim everyday clothing regardless of whether or not you wear it to work. For instance, you cannot claim the purchase of formal wear for a business meeting, but you can claim the purchase of black trousers as part of a work uniform.
9. Car & Vehicle Costs
You can claim various motor expenses if you need your car for business trips. This includes vehicle insurance, fuel, parking fees, repairs, or hire charges. Bear in mind that these costs must be associated with an irregular business trip, not your daily commute. If you use public transit, bus, and train fares also qualify under these same guidelines. You also cannot claim any fines if incurred even on a business trip.
10. Pension Contributions
Pension contributions for yourself are not technically business costs. Therefore, you wouldn’t claim expenses on it like other costs. Instead, you simply don’t have to pay tax on these contributions. However, you can claim pension contributions for employees as a business expense.
11. Staff & Employee Costs
Employee and staff salaries qualify as self-employed deductible expenses. Agency fees, benefits, bonuses, subcontractors, and employee National Insurance contributions are all expenses you can claim. However, you cannot claim your own salary, insurance, or income tax.
You may claim tax relief on any training courses related to your business for yourself or your employees. Although, these courses must be related to your current business model. You cannot claim tax relief on courses to help you start a new business or expand into new areas.
13. Charitable Donations
In most cases, charitable donations don’t qualify as a deductible business expense. However, there are exceptions to this with sole trader business expenses. If you donate via your bank account, you will not get any tax relief. However, if you donate via Gift Aid, you will receive 25p tax relief for every £1 you donate.
Whether to claim expenses or any other reason, FreshBooks takes the pain out of your tax preparation process. Watch the video to see how!
Self Employed Allowable Expenses Table
Please consult the following table for a quick overview of the allowable sole trader expenses list. You may use this as an easy-to-access reference to double-check if a particular expense is eligible.
|Home Expenses, including rent, repairs, and utilities||Yes||Depends on how much of your home is used for work|
|Home Mortgage||Partially||Only a part of the interest on a mortgage|
|Office Rent||Yes||All of it|
|Bank, Overdraft, Interest on Loans, and Credit Card Fees||Yes||If you’re using a cash basis, then you can only claim up to £500. Otherwise, all of it.|
|Electronics for Work (laptops, mobile phones, etc.)||Yes||All of it|
|Protective Gear for Construction Work||Only if your contractor does not provide it||All of it|
|Work Uniform||Only if your contractor does not provide it||All of it|
|Insurance or Leasing Payments||Only if it’s for work||All of it|
|Advertising (newspapers, Google Ads, etc.)||Yes||All of it|
|Hiring Other People (Subcontracting Work)||Yes||All of it|
|Buying Goods For Resale||Yes||All of it|
|Buying Raw Goods For Production||Yes||All of it|
|Transportation Expenses (fuel, car insurance, taxi fare, etc.)||Partially||Only the percentage you use for work. Daily commutes do not qualify.|
|Entertaining Clients Or Suppliers||No||—|
|Formal Business Suits||No||—|
What Expenses Can I Claim When Working From Home?
If you work from home, you may claim some of your utility bills and mortgage interest. The amount you can claim is based on the floor space and number of rooms you use for business. Here are some formulas to help you figure that out.
Calculate the percentage of the total surface area that your work room occupies:
- Surface area percentage = total surface area of your home/surface area of the room
Calculate the amount that can be claimed:
- Percentage you can claim = surface area percentage x bill amount
Calculate the amount of tax relief you may receive:
- Tax relief = percentage you can claim x days worked from home/total workdays
How Can I Track My Allowable Expenses?
There’s a good chance that you will have several allowable expenses. All of these expenses must be deducted to determine your taxable profit. To do this, you must create an organised system for all your receipts, credit card statements, or other relevant documentation.
This could be made much simpler with the FreshBooks expense tracking feature. Simply connect your bank account or credit card to FreshBooks, and the software will automatically update your records to include your most recent spending. This will save you hours on manual expense tracking.
FreshBooks Makes Tax Preparation Simple
Claiming expenses when you pay income tax can offer near-immediate tax relief. As a sole trader, this is crucial as you are the owner and primary employee of your business. Any tax-deductible on any business costs are surely to your benefit.
Keep this process simple with FreshBooks. Our accounting software makes it easy for you to maintain and retain accurate expense records. Try FreshBooks free to see how you like it and experience the difference it can make.
FAQs about Self Employed Expenses
As a self-employed business, you can claim tax relief on a lot of your assets. Still, you need to file your claims properly to reap the benefits. Here are some FAQs on this process to lend you a hand.
How do you prove self-employed expenses?
You can prove your self-employed expenses by maintaining accurate records of every business cost. Such records may include receipts, credit card statements, or correspondence. FreshBooks accounting software makes it easier for you to keep all these records organised in one central location.
Do I need fuel receipts to claim mileage?
You will need to keep your receipts to claim mileage on your personal vehicle if you drive it for business reasons. Remember, you can only claim business-related trips using your personal vehicle for this purpose. You will also need to retain records of the dates of your trips and your start/end addresses, including postal codes.
How much can I claim without receipts?
Claiming expenses always requires receipts unless you opt for a simplified expenses system. The amount will vary by system. Examples include the trading allowance and simplified expenses for working at home, company vehicles, or living on your business premises. You can calculate simplified expenses using FreshBooks just as easily.
How long do self-employed workers need to keep receipts?
Whether or not they are deductible expenses, for self-employed workers, business records must be retained for at least 5 years. This refers to 5 years after January 31 of the relevant tax year. For instance, records relevant to 2023 must be retained at least until January 31, 2028.
Will HMRC ask for proof of expenses?
The HMRC doesn’t routinely ask every self-employed individual to show evidence of their expenses. However, they have the authority to investigate your tax return. If the HMRC asks for proof of expenses, you must provide relevant documentation supporting your claims. You can use FreshBooks to maintain documentation to use in this situation.
About the author
Levon Kokhlikyan is a Finance Manager and accountant with 18 years of experience in managerial accounting and consolidations. He has a proven track record of success in cost accounting, analyzing financial data, and implementing effective processes. Levon holds an ACCA accreditation and a bachelor’s degree in social science from Yerevan State University. Catch up with him on LinkedIn: https://www.linkedin.com/in/levon-kokhlikyan-34281398/