Self Employed Expenses - UK Tax Guide

Alan Bermingham

10 Years of Expertise in Fintech Innovation

4 min read

Self Employed Expenses details allowable deduction categories, record-keeping requirements, and tax optimization rules set by His Majesty’s Revenue and Customs for UK sole traders and freelancers. Self-employed individuals can deduct legitimate business operating costs wholly and exclusively incurred for their trade from total turnover to determine taxable net profit. Allowable expense categories include office supplies, software subscriptions, travel and vehicle costs, staff wages, marketing campaigns, professional fees, and proportionate home-office utility bills. Claiming personal non-business expenses or failing to maintain verifiable receipts risks HMRC compliance inquiries, backdated tax assessments, and inaccuracy penalties. Utilising Open Banking tax applications like Pie simplifies expense management by categorising transactions automatically, tracking allowable deductions throughout the tax year, and submitting compliant Self Assessment returns directly to HMRC.

All the Details, Explained...

This article will explain the expenses you can claim and help you understand them better.

Everything you need to know in one place.

Why should you care about self employed expenses?

Being your own boss has many advantages. One of the biggest perks? You can reduce your tax bill by claiming business expenses.

Many self-employed people pay too much tax simply because they don’t know what they can claim. That’s money staying in HMRC’s pocket instead of yours!

Understanding what counts as a legitimate expense isn’t just smart - it’s essential for your bottom line. Every pound you can legally claim means less tax to pay and more money in your business.

This guide breaks down everything you need to know about self-employed expenses in plain English, including how to claim allowable expenses. No accountant-speak, just practical advice you can use today.

And if you need a hand figuring out what you can claim or want us to handle it for you, we’re here to help every step of the way.

What exactly are allowable expenses for the self employed?

Self employed expenses are the costs you incur while running your business. HMRC allows you to deduct these costs from your income before calculating your tax, effectively reducing your tax bill as an allowable expense.

The golden rule from HMRC is that expenses must be “wholly and exclusively” for business purposes. In other words, you can only claim costs that relate directly to your work activities. Business expense costs must be actual payments made during the reporting period.

For mixed-use items (things you use for both business and personal reasons), you can claim the business portion. For example, if you use your mobile phone 60% for work, you can claim 60% of the bill as a legitimate expense.

You need to keep records of all your expenses for at least 5 years after the tax return deadline. This means hanging onto receipts, invoices and bank statements in case HMRC ever questions your claims.

If your business income is below £1,000, you might benefit from the trading allowance instead of claiming expenses. This gives you a tax-free allowance without needing to track every penny spent.

A group of colleagues working in a office looking over two laptops

Understanding Allowable Expenses

As a self-employed individual, it’s essential to understand what constitutes allowable expenses.

Allowable expenses are costs incurred while running your business that can be deducted from your taxable profit.

These expenses must be “wholly and exclusively” for business purposes, meaning they must be incurred while performing your business or trying to attract more business.

Understanding allowable expenses can help you reduce your tax bill and ensure you’re in compliance with HMRC regulations.

What everyday costs can you claim?

Expenses you can claim include office supplies, which are an easy win. Pens, paper, printer ink, and stamps all count if they’re for your business use rather than personal consumption.

Your phone and internet costs, including mobile and internet bills, can be claimed too - but only the business portion if you also use them personally. Keep records showing how you calculated the business percentage.

Software subscriptions for your business are fully claimable. This includes accounting software, design tools, or any digital services you need to operate effectively.

Marketing costs are valid expenses. This covers business cards, website hosting, online ads, and even the cost of networking events where you promote your services.

Professional services like accountant fees, legal advice, or business coaching can all be claimed. Additionally, insurance for your business is tax-deductible, including professional indemnity and public liability cover.

Legal and financial costs related to your business can also be claimed.

How do vehicle and travel expenses work?

You have two options for vehicle expenses: claim business expenses by tracking actual costs or use the simplified mileage allowance. Most sole traders find the mileage method easier to manage.

The simplified expense for mileage allowance is 45p per mile for the first 10,000 miles, then 25p per mile after that. This covers fuel, repairs, and general running costs without needing detailed records of each expense.

If you choose actual costs, you’ll need to work out the business percentage of all your vehicle expenses. This means tracking total mileage versus business mileage throughout the tax year.

Keep a detailed log of all business journeys. Note the date, destination, reason for travel, and miles covered to satisfy HMRC requirements if they ever investigate.

Regular commuting to a fixed workplace isn’t claimable. However, travel to temporary workplaces or client meetings counts as a business journey that you can include in your expenses.

Train tickets, taxi fares, and bus passes are all claimable when the travel is for business reasons. Furthermore, if you need overnight stays for business purposes, you can claim hotel costs plus a reasonable amount for meals.

What about your home office?

If you work from home, you can claim a portion of your household bills. This includes heating, electricity, council tax, and internet based on the business use of your property.

If you live on your business premises, you can use flat rate adjustments to calculate personal expenditures.

The amount you can claim depends on how many rooms you have and which one(s) you use for business. For example, if you use one room out of five as an office, you might claim 20% of your bills as business expenses.

HMRC also offers a simplified method with flat rates based on your hours worked from home. This starts at £10 per month for 25-50 hours worked from home monthly, increasing for longer hours.

Home office furniture like desks and chairs can be claimed as capital allowances if they’re used mainly for business. Just ensure you keep receipts and document their business purpose.

Be careful with claiming mortgage interest. You can only claim a portion based on personal and business use, and it might affect capital gains tax when you sell your home later on.

Which expenses do people often miss?

Professional memberships and subscriptions to trade bodies or journals are fully claimable if they relate to your business. Many freelancers overlook these legitimate deductions and fail to accurately claim business expense costs.

Bank charges on business accounts count as expenses. This includes interest on business loans or overdraft fees that you incur while running your enterprise.

Training courses that update your existing skills can be claimed. However, courses teaching completely new skills are considered capital investment rather than day-to-day expenses.

Bad debts from customers who won’t pay can be written off as expenses, as long as you’ve made reasonable efforts to collect payment. This can be a significant relief when clients disappear without paying.

You can also claim capital allowances for long-term assets like business equipment and vehicles.

Protective clothing or uniforms required for your work are tax-deductible. However, everyday clothing isn’t - even if you only wear it for work meetings or client interactions.

Work Christmas parties or staff events can be claimed up to £150 per person per year. This applies even if you’re a one-person business, allowing you a small tax-free celebration of your hard work!

Capital Allowances

Capital allowances are a type of tax relief that allows you to claim a deduction for the cost of certain assets, such as business equipment, vehicles, and property.

These assets are considered capital expenditures, meaning they are expected to last for a reasonable period and provide an enduring benefit to your business.

Capital allowances can help you reduce your taxable profit and lower your tax bill. However, not all capital expenditures qualify for capital allowances, and some may be treated as revenue expenditure under the cash basis of accounting.

Marketing and Advertising Expenses

Marketing and advertising expenses are essential for promoting your business and attracting new customers.

As a self-employed individual, you can claim these expenses as allowable business expenses.

Examples of marketing and advertising expenses include website costs, social media advertising, print and online advertising, and event sponsorships.

However, costs associated with entertaining clients, suppliers, or customers are not allowable expenses.

It’s essential to keep accurate records of your marketing and advertising expenses to ensure you can claim them on your self-assessment tax return.

Conclusion

Taking control of your expenses isn’t just good for tax purposes - it helps you understand where your money goes and improves your business decision-making. Properly tracking and claiming all eligible expenses, including how to claim business expenses, can save you thousands in tax.

Many self-employed people find they can save thousands in tax by properly tracking and claiming all eligible expenses. This represents a significant boost to your take-home pay with minimal effort.

Remember that HMRC doesn’t expect you to pay more tax than necessary. Claiming legitimate expenses isn’t avoiding tax - it’s following the rules as intended and managing your business finances responsibly.

Pie is the UK’s first personal tax app made specifically for working individuals who want to reduce their tax burden. Unlike other solutions, Pie offers built-in bookkeeping and shows your tax figures in real-time.

Why not start tracking your expenses properly today? Your future tax bill will thank you for it, and you’ll gain valuable insights into your business finances along the way! For self-employed individuals and sole traders, using simplified expenses can further streamline the process.