A guide to business expenses when you’re self-employed

Running a business can be costly, but did you know that your expenses are tax deductible?

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By

Zoe Stabler DipFA

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Business expenses are the running costs of your business. These cover the things you need to buy in order to keep the business going, including office space, vehicles and computer software, to name a few.

When you’re running a business, you should keep a record of all of your business-related purchases, usually referred to as “allowable expenses” or “tax deductible expenses”, so you can fill out your self-assessment tax return at the end of the tax year for the right amount. This could lower the total tax that you pay, so it’s worth doing. We detail some of the things that count as allowable expenses below.

Which business expenses are tax deductible?

Costs that can be claimed as allowable expenses include:

  • Office costs. This could be the cost of rent for your office, any stationery you use, printing and phone bills.
  • Travel. This includes any fuel and parking costs as well as train and bus fares (but not for travelling to and from work).
  • Clothing. You can deduct the cost of uniforms and the laundry costs of cleaning the uniforms if you are the one that cleans them.
  • Staff. If you have any staff that you pay a salary to or the costs of contractors.
  • Stock. This includes raw materials or stock that you purchase with the intention of selling on.
  • Bank charges and insurance. Any charges that your business bank account has and the cost of business insurance or insurance related to the business (such as vehicle insurance).
  • Marketing costs. This includes the costs of your website, social media advertising, printing costs and business cards.
  • Training. The costs of training that relate to your business. For example, if you run a hair salon, you can’t claim allowable expenses for a training course for an estate agency (unless you’re planning on opening the first hair salon estate agency in the UK).

Office, equipment and stationery

You can claim allowable expenses for stationery and office equipment that is used in the running of the business. These include:

  • Phone bills
  • Internet bills
  • Postage costs
  • Stationery
  • Printing (paper and ink cartridges)
  • Software you use for your business
  • Rent
  • Utility bills
  • Insurance
  • Security

Travel and vehicle expenses

Travel and vehicle costs related to the running of your business are allowable expenses. For example, if you are a window cleaner, then travelling to a client’s home to clean their windows is an allowable expense. The cost of travel to and from your office is not an allowable expense.

Other travel and vehicle expenses include:

  • Insurance (travel and vehicle)
  • Vehicle repairs and servicing
  • Fuel
  • Parking
  • Licence fees
  • Train, bus and taxi fares
  • Hotel rooms and meals for overnight trips

Clothing and laundry expenses

If you need to buy any clothing for the running of your business, you can do so. These include:

  • Uniforms
  • Protective clothing (PPE)
  • Costumes (for actors and entertainers)

With laundry costs, if you are the one that cleans the uniforms, then you can deduct the cost of this. If your staff clean their own uniforms at home then they can deduct the cost of laundry from their income tax. Your staff can check if they are eligible on the HMRC website.

Everyday clothing, regardless of if you wear it for work, is not an allowable expense.

Staff expenses

Hiring staff comes with added costs. These can be claimed as business expenses and include:

  • Salaries
  • Bonuses
  • Pensions
  • Employee benefits
  • Agency costs
  • Contractor fees
  • National Insurance
  • Training courses and exams

Before you get too excited, note that you can’t deduct your own salary, National Insurance, pension or income tax.

You may need to hire a lawyer or accountant to assist with the running of your business. If you’re running a limited company, then by law you need an accountant to sign off on your annual accounts. The costs of these services are included as allowable expenses as long as they’re business-related.

Business bank accounts don’t tend to be completely free, but you can claim allowable expenses for:

  • Overdraft charges
  • Credit card charges
  • Interest on loans
  • Bank account charges
  • Leasing charges

What if I use something for both my business and personal reasons?

This might occur if you use your personal mobile phone for business calls. In this case, you can only claim allowable expenses for the costs relating to your business. Taking the example of your mobile phone, if 50% of the cost relates to the business, then you can deduct 50% as allowable expenses.

What if I work from home?

If you have the privilege of a 20-second commute to your sofa in the morning, you may be wondering if you’re losing out on tax benefits. You may be able to claim some of your home costs as allowable business expenses. This gets a little complex, as the amount you can deduct depends on how much of the house you use and how much time you spend working from home.

For example, if you use one of the four rooms in your home for your business, you can split the relevant bills by four to work out your allowable expense. If you only work from home for half of your time, then you’d further divide the cost by two.

Expenses you might be able to deduct if you work from home:

  • Rent or mortgage interest
  • Electricity and heating bills
  • Council tax
  • Broadband costs

What are simplified expenses?

If you’d prefer to avoid complicated spreadsheets and formulas, there are flat rates for some expenses. It’s up to you and your business whether you want to use this simplified expenses option. If any of your expenses aren’t included below, you’ll need to work them out with receipts, the traditional way.

How do simplified expenses work?

Simply record your business miles, how much time you spend working from home and the number of people that live at your business premises in any given month.

At the end of the tax year, work out your expenses using the flat rates and input this into your self-assessment tax return.

What are the flat rates for the 2023/2024 tax year?

Vehicles

Vehicle typeFlat rate per mile
Cars and goods vehicles (first 10,000 miles)45p
Cars and goods vehicles (after 10,000 miles)25p
Motorcycles24p

Working from home

Hours used for business per monthFlat rate per month
25 to 50£10
51 to 100£18
101 and above£26

People living at your business premises

When people are living at your business premises – for example, if you own a bed and breakfast – you need to deduct the flat rate from the total expenses of the business. If someone only lives at the premises for two months, you only count these months in your calculation.

Number of people living on the premisesFlat rate per month
1£350
2£500
3 or more£650

What are disallowable expenses?

Expenses that aren’t related to the running of your business are strictly disallowable, such as everyday clothing, donations to charity and your salary (as the business owner).

The cost of entertaining potential or current clients is a disallowable expense. This includes food, drink, sporting events and theatre trips, among others.

How do business expenses affect tax?

The amount of tax you pay will depend on your profit, not how much revenue you bring in. This means that you deduct your expenses from your turnover. This amount is what your tax is worked out with.

This is likely to lower your tax bill, so it’s worth checking if you’ve made any transactions that are allowable expenses over the tax year, to ensure that you’re not overpaying on tax.

How do I claim business expenses?

From day one, keep all of your receipts, regardless of whether you think it’s an allowable expense. It’s a good idea to keep them all listed somewhere, such as in a spreadsheet with the total costs and the transaction dates. It’s useful to have a folder with all your receipts, and you can also have them scanned into your computer in case you need them.

When you do your self assessment tax return, enter the total costs of your allowable expenses on it. You may need to go back through your receipts to check that they’re all allowable. You won’t necessarily need to show any proof of these expenses, but you should keep hold of them in case HMRC asks you for them.

How to track business expenses

If you know how to create a basic spreadsheet, then this can help you keep track of the expenses you incur for your business.

It’s best to do this as soon after the purchase as you can, otherwise you’ll find yourself searching for and trying to decipher receipts with days to go before your tax assessment is due.

There are apps that can help you out here. Some business accounts offer integrated accounting software, such as Revolut, Starling and Tide. When you’re opening a business bank account, have a look at the integrations it has to see if any of these work for you.

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