A Guide to Allowable Expenses

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If you’re self-employed (aka a sole trader) and need to buy something for your business, you can claim this expense on your tax return and it will lower your tax bill. This is known as an ‘allowable expense’.

Self-employed tax is based on the amount of profit made in a tax year. However, allowable expenses can be deducted from your profit and thus reduce the amount of tax you owe.

For example, if you make £35,000 profit but claim £7,500 in allowable expenses you will only pay tax on the remaining £27,500. That £27,500 is known as ‘taxable profit’.

If you use traditional accounting (rather than cash basis) the following is not a complete guide. Contact a bookkeeper or your tax adviser for more advice.

Allowable expenses you can claim for

Here are some of the most common allowable expenses claimed by sole traders. There are a lot, so I’ve categorised them for easier reading:

Business premises

-          Rent for business premises, and business rates.

-          The cost of utilities including light, water, heating and electricity.

-          Property insurance.

-          Security.

If you work from home you can also claim a proportion of rent/mortgage and utilities as an allowable expense. Work from home expenses can be complicated, so here’s a simple guide to walk you through it. 

Stock and materials

-          The cost of items bought to sell (stock).

-          Cost of raw materials bought to make items to sell.

-          Costs associated with producing/manufacturing goods to sell.

Staff

-          Staff salaries, bonuses, pensions, benefits, agency fees and subcontractor wages.

-          You can even claim for employer’s National Insurance contributions.

Stationery and office supplies

-          Pens, paper, envelopes etc.

-          Printer ink.

-          Packaging materials.

-          Computer software used for less than two years.

-          Cost of computer equipment.

-          Phone, mobile and internet costs.

Professional services

-          If you hire an accountant, solicitor, surveyor, architect or other professional for your business, you can claim back the cost of their fees.

Advertising and marketing

-          Print and online advertising.

-          Costs of creating, hosting and maintaining company website.

-          Email marketing.

-          Free samples.

Travel

You can claim back travel and accommodation costs if the reason for travelling was for business. This includes trains, buses, taxis and air fares, as well as hotel/Airbnb costs.

 If you travel for work and decide to stay a few extra days for a private holiday make sure you keep business and personal costs separate. If you can’t split them up, you can’t claim tax relief on any part of it.

Can I claim back every expense?

Sadly not. There are a number of business expenses that are not considered allowable for tax purposes (also known as disallowable expenses).

The list of disallowable expenses is fairly extensive and there simply isn’t the space to include them here. HMRC have excellent resources for calculating your taxable profits, including a full list of allowable and disallowable expenses. You can check them out here.

If you need help figuring out which expenses you can or can’t claim back, get in touch today.