What are Allowable Expenses for Self-Employed People in the UK?

In the UK, paying taxes on taxable income is almost inescapable since HMRC (the government’s main department responsible for collecting taxes) has strict regulations to ensure all legal business entities pay the tax owed. This blog will list and elaborate on what are allowable expenses for self-employed people to make them learn how they can reduce their tax burden and enhance their business profitability.

Similarly, self-employed people, including freelancers, contractors, and sole traders, are also liable to pay income tax on their taxable business earnings. The self-employed pay and calculate the tax due to HMRC via a self-assessment tax return.

Furthermore, in order to avoid the overpayment of taxes, you must ensure that you pay the accurate amount of income tax. More importantly, you can cut down your tax bill by claiming all the costs that are critical for your business since HMRC often does not tax you on the expenses necessary to spend to keep your business running.

Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.

What are allowable expenses for self-employed people?

The earnings of a self-employed individual are taxed based on the amount of profit they generate in a tax year. 

Fortunately, there are a number of expenses that you can claim as deductible from HMRC to cut down your tax bill.

These expenses are usually called allowable expenses because HMRC allows the deduction of costs incurred on certain purchases that are critical for the unhindered running of your business. Ultimately, once you deduct these expenses from your profit, you will significantly lower your tax bill.

Now, the major deductible costs are listed below for you to find out what are allowable expenses for self-employed people in the UK:

Office supplies:

To begin with, the costs of all the office-linked supplies can be deducted from the profit, such as:

• Stationery items (pens, papers, envelopes)
• Printing and postage costs (including the printer ink costs).

Office equipment:

Your business equipment, such as laptops, desktops, printers, and computer software, are allowable, given they have been in use for less than two years.

Business communications:

In the post-pandemic times, when more businesses now conduct their trading online, they can fortunately claim the costs of electronic communications, like business phone, mobile and internet bills.

Business premises:

The following are the tax-deductible expenses for self-employed:

• Rent.
• General maintenance, including heating, cleaning, and lighting.
• Repair.
• Water charges.
• Utilities.
• Buildings insurance.
• Security costs.

On the contrary, you cannot claim any costs if you buy your premises. Likewise, you cannot claim the initial cost of buildings or renovations, like extensions.

Legal and financial services:

It is likely that you seek professional advice from an accountant, solicitor, or lawyer as part of your business. Hence, the fees incurred on securing these services are also allowable.

Similarly, the costs for hiring surveyors and architects purely for business purposes are claimable.

Bank charges:

For your business bank account, you can also claim tax relief on bank, overdraft, and credit card costs, along with business loan interest.

Marketing and advertising:

Another claimable cost when learning what are allowable expenses for self-employed is the marketing and advertising charges. 

All the advertising and marketing you do to promote your products and services to the target audience can be claimed back. It also includes costs for hosting and maintaining your company website.

Nevertheless, it is often observed that people misinterpret treating a client or supplier to lunch as marketing, whereas, under HMRC guidelines, it is considered entertaining, for which you cannot claim tax relief.

Membership or subscription costs:

In the event that you are a member of a professional trade association or organisation for business, the membership fee is an allowable expense. Similarly, subscriptions to trade or professional journals are also claimable. 

Transport, travel, and accommodation:

If your business requires you to travel to different places, all the accommodation, travel, and transport costs incurred (including the ones for train, bus, taxi, and airfares) are tax-deductible.

Take note that the primary reason for your business trip or stay must solely be for your business.

Besides, running costs of a car or other vehicle, like fuel, car tax, insurance, repairs, and servicing, are also allowable.

Further down the line, if you choose to use a private car instead of the company car, you can only claim a portion of the costs based on how much the car is used for business. It is typically the ratio of your business mileage to your overall mileage. Consequently, it’s a good idea to keep track of company travel and bills for a reasonable period of time.

It is worth highlighting that if you are travelling between home and your workplace, the resulting costs are non-claimable. Besides, the cost of buying a vehicle and meals do not fall under allowable expenses.

Work clothing:

If your business requires you to wear any specific uniform or costume, it shall also be deemed as a tax-deductible expense.

Employees salaries and benefits:

Remember the following payments also fall under the claimable when determining what are allowable expenses for self-employed:

• Employees’ salaries and redundancy compensation.
• Employer’s National Insurance.
• Any Insurance and pension benefits given to employees
• Any employee childcare clause agreed upon by an employer. 
• Employees’ training costs.

On the flip side, the following are non-tax-deductible expenses:

• Employer’s own wages, salary, or other business-withdrawn money 
• Employer’s own Income Tax and NICs. 
• Employer’s own pension costs and life insurance.

Work-from-home expenses:

Since you are a self-employed individual, let’s say, a sole trader, it will not be unlikely for you to run your businesses from home.

Now, in this scenario, you can only claim the proportion of the expenses associated with the space you occupy or use for conducting business. For instance, the expenses for electricity, heating, council tax, rent, internet, and phone bills are claimable.

However, splitting your bills in accordance with the number of rooms you use for your business or your time working from home is a far more practical way to divide your expenses.

For instance, consider you live in a five-room home with one of them being your office. Then, one-fifth of your heating bill may be tax-deductible.

Ultimately, the best way to work out the expenses while working from home is to seek guidance from your accountant so you can avoid over-claiming or under-claiming.

How to claim allowable business expenses to reduce the tax bill?

As previously mentioned, self-employed people pay income tax on their taxable business earnings. However, it is noteworthy that not all the earnings are subject to tax.

Instead, only the taxable income will be paid the tax on. It is the income left after all the claimable (tax-deductible) expenses and personal allowance have been deducted from the gross pay.

It can be understood by considering the following example:

Suppose being a self-employed individual, your business has generated £50,000 income for the year, and you have incurred £7000 as essential business-running expenses. Subsequently, the amount of £7000 will be your claimable expenses.

Moreover, you also have a personal allowance of £12,570 in the current tax year. 

Now, you will calculate your taxable income by the following step:

Taxable income = Gross income – Allowable expenses – Personal allowance

£30,430  = £50000 – £7000 – £12,570

Thus, your taxable income that you will have to pay the tax on to HMRC is £30,430.

Notably, had there been no allowable expenses in this example, your taxable income would have been £37,430.

Eventually, after calculating what is tax-deductible, you will add the details to your tax return.

Get expert financial advice on tax planning with Accountingfirms:

Calculating and paying the correct amount of tax comes under the effective personal tax planning. It is substantial since people often end up facing overpayment of taxes because they are unaware of what their claimable expenses and allowances are or how they can benefit from them.

Therefore, you must remain proactive about identifying your outgoing money and finding out if you’re due a tax refund or if you owe more tax.

By knowing and claiming all your deductible business-running expenses, you can undeniably shed the weight of your tax liabilities with HMRC.

Although it is ‘self-assessment,’ you are not obligated to do it yourself. Rather, you can hire an accountant to file your self-assessment on your behalf. An accountant has a greater likelihood to complete it accurately and timely.

Moreover, with a well-versed and certified accountant registered with Accountingfirms, you can get tailored and comprehensive consultation on what are allowable expenses for self-employed people to ensure tax optimisation and manage your self-employed expenses hassle-free.

Last but not least, our paramount goal is to ensure the accountants listed on our directory list are not only all-rounders in providing expert financial advice but also charge the optimal rates based on your location so that you only get the cost-effective yet customised solution for your business.

Final thoughts:

Understanding what are allowable expenses for self-employed is unarguably imperative for managing your finances and ensuring you are getting your tax right.

By tracking all your allowable expenses, you can make considerable deductions, as a result of which your taxable income drops and your business’s profitability elevates.

Therefore, learning what to claim and how much, you will only pay what you rightfully owe and not more. For further information on the allowable expenses, you can visit the government website

Since this entire guide revolves around self-employed individuals, you can enlighten yourself about the nuts and bolts of self-employment by reading our following extensive guides:

Everything you must know about what is self-employment.

What are advantages and disadvantages of being self-employed?

What are the types of self-employed in the UK?

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.