The guidance here is intended for sole traders and the self-employed. You must follow different rules if you operate through a limited company.
Being self-employed you will incur various costs and expenses as a result of running your business. Knowing what you can and cannot claim for can be a minefield and you may think it tedious to keep track of every little expense and keeping every single receipt. However, over the course of a year, those costs add up and you could find yourself over paying tax as a consequence.
In simple terms, you pay tax on your sales less your costs, and this is where it literally pays to have a good accountant. A good accountant will be able to help you claim all of the deductions and allowances that you are entitled to, specific to your circumstances, and ensure that you pay no more tax than you need to.
Self employed expenses: the basic rule
For an expense to be allowable for tax purposes the basic rule is that it must have been incurred “wholly and exclusively” for the purpose of carrying out the trade. Still, applying this rule is not always straight forward and everyone’s circumstance and industry is different. Here we run through the basic expenses that most self-employed people would be entitled to claim, and touch on a few that they would not.
The following is not intended to be an exhaustive list, but covers some of the typical expenses that the self-employed can claim for:
- Printing, postage and stationery costs
- Phone, mobile and internet bills
- Motor costs: Insurance, repairs and servicing, fuel, parking, hire charges, licence fees, breakdown cover
- Travel: Train, bus, air and taxi travel. Hotel rooms and meals on overnight business trips
- Clothing: Uniforms and protective clothing only
- Staff costs: Staff salaries, bonuses, pensions, benefits, agency fees, subcontractors, employers national insurance
- Stock / raw materials to sell on
- Legal and financial costs: Accountants fees, solicitors, surveyors and architects
- Insurance: Professional indemnity
- Financial charges: Bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest, leasing payments
- Premises costs. Rent, business rates, water rates, utility bills, property insurance, repairs and maintenance, cleaning, security
- Working from home costs
- Advertising or marketing: Advertising in newspapers/directories, mail shots, free samples, website costs
- Subscriptions: to trade or professional journals or memberships if related to your business
Equipment that you would normally use for more than 2 years (such as computers and printers) are claimed through Capital Allowances.
We will be expanding further on a number of these over the coming weeks as part of our Self-Employed Expenses blog series.
Some expenses are never allowable for tax purposes. The following are disallowed expenses that we are frequently asked about:
- Ordinary clothing
- Food for sustenance
- Non business travel or travel between home and work
- Entertaining or hospitality
- Your own salaries or drawings
- Fines for breaking the law
Talk to your accountant if you are unsure if an expense falls into one of these categories.
Business and personal use
There may be some expenses that you incur which are used both in your self-employed business and by you personally. You must adjust your claim accordingly and only claim for the business portion of the expense.
How to claim self-employed expenses
You must retain complete and accurate records of all of your self-employed expenses as proof of your costs. The total of these will be included on your self-assessment tax return and will be used to calculate your taxable profit.
How we can help
If you need any help ensuring you are claiming for all of your self-employed expenses get in touch.