Claiming allowable expenses is one of the most effective ways to reduce your taxable profit and overall tax bill if you’re self-employed or a sole trader in the UK. Understanding what counts as an allowable expense, how to calculate them, and how to include them in your Self-Assessment tax return is crucial for maximising your deductions while staying compliant with HMRC rules. This detailed guide explains everything you need to know about claiming allowable expenses on your UK tax return.
What Are Allowable Expenses?
Allowable expenses are business costs that you can deduct from your income before calculating your taxable profit. These expenses must be “wholly and exclusively” for the purpose of running your business. Personal expenses are not allowable unless they are a genuine part of your business activity (e.g. using your home as an office or using your car for both business and personal journeys).
Why Claiming Expenses Matters
Claiming allowable expenses reduces the amount of profit on which you pay Income Tax and National Insurance Contributions (NICs). By deducting these costs, you effectively lower your overall tax liability and keep more of your hard-earned income. Properly claiming expenses also ensures you are accurately reporting your financial position to HMRC.
Common Allowable Expenses
Here are some of the most common types of allowable expenses you can claim as a self-employed individual:
- Office Costs: Rent, utilities, internet, phone bills, and stationery.
- Business Premises: Heating, lighting, and maintenance costs.
- Travel Costs: Business mileage, public transport fares, hotel accommodation, and meals (when travelling for work).
- Staff Costs: Salaries, wages, subcontractor fees, and employer’s National Insurance contributions.
- Stock and Materials: Raw materials, goods for resale, and packaging.
- Marketing and Advertising: Website costs, advertising, and promotion expenses.
- Insurance: Public liability, professional indemnity, and other business-related insurance policies.
- Professional Fees: Accountancy fees, legal fees, and other consultancy costs.
- Bank Charges and Interest: Business account fees and interest on business loans.
It’s important to keep detailed records and receipts to support any expenses you claim, as HMRC may request evidence if they conduct an audit.
Using Your Home for Business
If you work from home, you may be able to claim a proportion of your household expenses as business costs. This includes:
- Rent or mortgage interest (not the capital repayment).
- Council tax.
- Utilities such as electricity, gas, and water.
- Internet and telephone costs.
You can use either the simplified expenses method (a flat rate based on the number of hours worked at home) or calculate the actual proportion of costs used for business purposes. Whichever method you choose, keep clear records of your calculations and supporting documents.
Vehicle and Travel Expenses
If you use your car, van, or motorcycle for business, you can claim allowable expenses for vehicle running costs. These include fuel, servicing, insurance, repairs, and road tax. You can choose between:
- Actual Costs: Claim a proportion of all vehicle costs based on business mileage compared to total mileage.
- Simplified Expenses: Use HMRC’s flat rate per mile (45p per mile for the first 10,000 miles, 25p thereafter).
Public transport fares, parking fees, and tolls incurred for business purposes are also deductible. Note that travel between your home and your regular workplace is not considered a business journey and is not allowable.
Claiming Capital Allowances
For larger purchases of equipment, machinery, or vehicles used in your business, you may be able to claim capital allowances. These allow you to deduct a portion of the cost from your taxable profits each year. The Annual Investment Allowance (AIA) lets you deduct the full cost of qualifying items (up to the annual limit) in the year of purchase. For 2024/25, the AIA limit is £1 million. Certain items may qualify for other allowances, such as the Writing Down Allowance or the Super Deduction (until March 2026).
How to Include Expenses in Your Self-Assessment Tax Return
When filing your Self-Assessment tax return online, you’ll need to enter your business income and expenses on the Self-Employment pages (SA103S or SA103F). HMRC’s online system guides you through this process step-by-step:
- Report your total business income (excluding VAT if you’re VAT-registered).
- Enter your total allowable expenses in the appropriate boxes (e.g. rent, wages, vehicle costs).
- HMRC’s system calculates your net profit after expenses, which is the amount you’ll pay tax and NICs on.
For small businesses with turnover below the £85,000 VAT threshold, the short form (SA103S) is usually sufficient. Larger businesses or those with complex accounts may need to use the full form (SA103F).
Keeping Records
HMRC requires you to keep detailed records of all your business income and expenses for at least five years after the 31 January filing deadline of the relevant tax year. These records should include invoices, receipts, bank statements, and any other supporting documents. Good record-keeping not only helps with accurate tax reporting but also provides protection if HMRC conducts a compliance check.
Common Mistakes to Avoid
When claiming expenses on your tax return, watch out for these common errors:
- Claiming personal expenses as business expenses without proper apportionment.
- Forgetting to claim allowable expenses like business phone costs or home office costs.
- Not keeping receipts or other proof of expenses claimed.
- Using the wrong method for vehicle expenses (e.g. claiming both flat rate mileage and actual costs).
Double-check your figures and consult with a tax advisor if you’re unsure about any items to avoid mistakes that could lead to penalties or tax underpayments.
Conclusion
Claiming allowable expenses is a key part of managing your finances as a self-employed individual. By understanding what you can claim and how to record and report these expenses accurately, you can reduce your tax bill and stay compliant with HMRC requirements. Keep detailed records, use HMRC’s online tools or accounting software, and seek professional advice if your circumstances are complex. With the right approach, you can confidently claim the expenses you’re entitled to and keep more of your hard-earned money in your pocket.
