Self assessment expenses: What can I claim?
As a self-employed person in the UK, you need to fill out your Self Assessment tax return at the end of each year and submit it to HMRC via the GOV.UK website.
The purpose of these tax returns is to show the authorities how much income you’ve earned throughout the year and the income tax you’re liable to pay.
One of the significant steps involved in filling out your Self Assessment is calculating the total expenses you’ve incurred throughout the year.
HMRC permits self-employed individuals and small businesses to deduct some expenses from their overall income to claim tax relief. But not every business purchase is an allowable expense.
In this article, we’ll discuss what allowable expenses are, list the different expenses you can claim and show you how to claim your self-employed expenses from HMRC.
Top Tip: If you are self-employed or earn money from another income stream outside of employment, you may need to file a Self Assessment tax return. Learn what a Self Assessment tax return is and how to complete one in our guide Self Assessment tax returns—everything you need to know 📓
Table of contents
- What are allowable expenses?
- Self Assessment expenses you can claim
- How to claim back self assessment expenses
- Wrapping up
What are allowable expenses?
Allowable expenses are business costs that you can deduct from your total profit before calculating your tax bill.
For example, if your company earned £20,000 in a year and your allowable expenses amount to £4,000, you’ll only need to pay tax on £16,000.
Before calculating your business’s allowable expenses as part of your Self Assessment, you first need to understand the difference between personal and business expenses.
Small business owners often make the mistake of confusing the two, which leads them to calculate the wrong amount for their allowable expenses.
Personal expenses are costs that are not directly tied to your business, while business costs are purchases you made for business purposes only.
For example, if you have a car that you use for business meetings and personal trips to a friend’s house, the cost of fuel for the former will count as a business expense, but the fuel expense for the latter will count as a personal expense.
Personal expenses are not considered as allowable expenses, but business expenses are. So, in the example above, you would need to factor in only a percentage of your total cost of fuel under allowable expenses.
Top Tip: The expenses you can claim depend on your business type. For example, sole traders are able to claim some costs that limited companies must pay tax on. To learn more about different business types, read our guide on choosing between a limited company and a sole trader 🏢
Self Assessment expenses you can claim
In this section, we’ll go into more detail about the different types of expenses you can claim for your small business.
These costs have been specified by HMRC as allowable expenses for self-employed people.
1. Office expenses
Office expenses are costs incurred on items that are typically used in your office for less than two years. They include business stationery, office bills, furniture and more.
Here are some examples of office expenses:
- Desk phone, mobile phone, fax and broadband bills
- Office supplies
- Office desks and chairs
- Printer ink and cartridges
You can also include the cost of any computer software your business uses under allowable expenses, provided that the software has been used for less than two years.
And if you pay a monthly subscription fee for any software, you can also include that cost even if you’ve been using the software for more than two years.
Top Tip: Cash basis accounting is a simpler way to organise your expenses if you’re a sole trader, but it has limitations. To learn more about the types of small business accounting methods, read our complete guide on small business accounting 👜
2. Business premises expenses
HMRC also allows you to claim some of your business premises expenses, including running costs. These include:
- Repairs and maintenance of business premises
- Repair and maintenance of equipment
- Business water rates
- Utility bills
- Property insurance
According to HMRC, you cannot claim expenses or allowances for buying or building your business premises.
However, if you install or replace some equipment, you can claim those costs as allowable expenses if you are using cash basis accounting or as capital allowances if you are using traditional accounting.
Since the start of the coronavirus pandemic, many businesses have been operating from home. If this applies to you, HMRC allows you to claim part of your home utility bills using a flat rate based on the hours you work from home each month.
According to HMRC, you can only use simplified expenses if you work from home for a cumulative of 25 hours or more per month.
Here’s a table to help you work out the expenses you can claim:
|Hours of business use per month||Flat rate per month|
|25 to 50||£10|
|51 to 100||£18|
|101 and more||£26|
For example, let’s say that you worked 80 hours each month from home for six months and 120 hours from home for each of the remaining six months.
Here’s how you can calculate your allowable business premises expenses for the year:
06 months x £18 = £108 (for 80 hours)
06 months x £26 = £156 (for 120 hours)
Total claimable amount: £108 + £156 = £264
The flat rate does not include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.
Note: Before using simplified expenses, make sure you compare the flat rate with your actual costs to see if using one method can save your business more money than the other. You can use HMRC’s simplified expenses checker to find out.
Top Tip: If you’re a sole trader, you can find out which business purchases can be claimed back and exactly how to do so in our guide on what reimbursable expenses are and how to claim them 💷
3. Travel expenses
If your business requires you to travel—whether by car, bus or air—there are some travel expenses that you can claim. These include:
- Cost of fuel
- Vehicle insurance
- Repairs, maintenance and servicing for business vehicles
- Hire charges
- Train, bus, air and cab fares
- Vehicle licence fees
- Breakdown cover
- Parking costs
If you’re required to travel away from home for business dealings and stay overnight, you are also eligible to claim the cost of your hotel rooms and the meals you have on those overnight business trips.
Note: You can’t claim the amount you spend on travelling between home and work, any fines you may incur and other non-business travel costs.
Calculating these expenses can be tricky at times, especially if you use the same vehicle for personal and business use. In that case, you can use a flat rate for mileage to calculate your allowable travel expenses.
These simplified expenses can be used for:
- Cars (except those designed for commercial use, e.g. black cabs)
- Goods vehicles (e.g. vans)
Here’s a table to help you work out a flat rate for your travel expenses:
|Vehicle||Flat rate per mile with simplified expenses|
|Cars and goods vehicles first 10,000 miles||45p|
|Cars and goods vehicles after 10,000 miles||25p|
For example, let’s say you drove 20,000 business miles over the year. Here’s how you can work out your allowable travel expense for the year using a flat rate for business mileage:
10,000 miles x 45p = £4,500
10,000 miles x 25p = £2,500
Total claimable amount: £4,500 + £2,500 = £7,000
When it comes to buying a vehicle, you can claim that expense as a capital allowance if you’re using traditional accounting. If you’re using cash basis accounting, you can still claim the amount as a capital allowance as long as you’re not using simplified expenses.
4. Legal and financial costs
Many small businesses work with accountants, surveyors, solicitors, and other legal professionals for various reasons.
According to HMRC, you can include the costs of their professional services and insurance premiums in your allowable expenses.
Additionally, you can also claim some financial costs, such as:
- Bank, overdraft, and credit card charges
- Interest on bank and business loans
- Hire purchase interest
- Leasing payments
- Alternative finance payments, such as Islamic finance
- Insurance policy cost
HMRC states that a business can only claim up to £500 in interest and bank charges if they use cash basis accounting, and it can not make any claim on repayment of loans and other financial arrangements.
Another item you are unable to claim while using cash basis accounting is bad debts. That’s because in cash basis accounting, you only record income you’ve successfully received. Bad debts, on the other hand, are people who have failed to pay you at all.
However, businesses that use traditional accounting can claim bad debts, as they include this amount in their company’s turnover.
Additionally, HMRC states that you can’t claim the following:
- Debts not included in turnover
- Debts related to the disposal of fixed assets
- Bad debts that aren’t correctly calculated
Top Tip: Hiring an online accountant can help you prepare and file your taxes accurately and on time, no matter how complex they are. Learn more about when to hire an accountant and how to find one in our guide on hiring an online accountant for your small business 🔍
5. Marketing, subscriptions and entertainment
You can claim some marketing and subscription costs as part of your allowable expenses. These include:
- Advertising in newspapers and directories
- Bulk mail advertising
- Cost of creating and managing the company website
- Free giveaways and samples for promotion purposes
- Trade or professional journals
- Any trade or professional organisation’s membership that’s related to business
If you’re organising events for your clients, suppliers and other partners, HMRC states that you cannot claim such expenses. Similarly, you can’t claim any payments made to political parties.
6. Clothing expenses
HMRC stipulates that a self-employed individual can claim the cost of essential clothing they wear as part of their allowable expenses.
This includes any uniforms and protective clothing needed to wear for work. If it’s an entertainment business, it includes any costumes and gear worn by entertainers and other artists, including clowns, acrobats, magicians and others.
Everyday clothing you wear to work isn’t a part of this and can’t be claimed.
7. Staff costs
According to HMRC, employee and staff salaries are considered to be allowable expenses. Other than salaries, here are some other claimable staff expenses:
- Agency fees
- Employer’s National Insurance
Note that any domestic help or carers you hire aren’t included in this list.
You can also claim allowable business expenses for any training courses that help you improve your skills and knowledge of your business. However, HMRC strictly states that the training must be related to your business.
General training courses that teach you how to start a business or expand into new business areas aren’t claimable.
8. Reselling goods
You can also claim tax back on:
- Items you resell, such as stock
- Raw materials that you use to make your products
- Direct costs of producing goods
Just like with other expenses, you cannot claim items you initially bought for personal use but are looking to sell. You are also unable to claim the depreciation expenses of equipment you own and are looking to sell.
9. Charitable donations
According to HMRC, all charitable donations are 100% tax-free.
So, if you’re a business that gives money to charity, then you can include those donations as allowable expenses on your Self Assessment tax return.
This includes making donations directly from your wages, pension, land, property, or shares or through Gift Aid.
Top Tip: If you’re a limited company, you can find out which expenses you can claim on your tax return and how to do so in our guide to limited company expenses 🔑
How to claim back self assessment expenses
To claim some or all the expenses stated above, simply add up all your allowable expenses for the year and enter the total amount on your Self Assessment tax return.
HMRC does not require you to submit any proof of expenses when you submit your tax return, but that doesn’t mean you shouldn’t keep a record of all the costs incurred as evidence.
The government might request proof of expenses at any time, so it’s good practice to always have an accurate record to show them.
You can keep this expense record in both physical and digital forms, including receipts, scanned images and mobile photographs.
Completing your Self Assessment helps you determine and pay the right amount of tax to HMRC by deducting allowable expenses. In some cases, HMRC may even end up owing you money.
To avoid getting into legal trouble, make sure you complete your tax return and pay any outstanding amount to HMRC before the deadline for the tax year. If you have any queries, you can get help from HMRC’s Self Assessment team online or over the phone.
Photo by George Milton, published on Pexels