Expenses if you're self-employed
Overview
If you鈥檙e self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they鈥檙e allowable expenses.
For example, if your turnover is 拢40,000 and you claim 拢10,000 in allowable expenses, you鈥檒l only pay tax on the remaining 拢30,000 - known as your taxable profit.
If you聽run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a聽company benefit.
Allowable expenses do not include money taken from your business to pay for private purchases.
This guide is also available in Welsh (Cymraeg).
Costs you can claim as allowable expenses
You can only claim for costs related to business purchases, including:
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
You cannot claim expenses if you use your 拢1,000 tax-free 鈥榯rading allowance鈥�.
If you鈥檙e not sure whether a business cost is an allowable expense contact HM Revenue and Customs (HMRC).
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy:
- equipment
- machinery
- business vehicles, for example cars, vans, lorries, bicycles
You cannot claim capital allowances if you use your 拢1,000 tax-free 鈥榯rading allowance鈥�.
If you use cash basis
If you use cash basis accounting and buy a car for your business, you can claim capital allowances on the cost of the purchase. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.
If you use something for both business and personal reasons
You can only claim allowable expenses for the business costs.
Example
Your mobile phone bills for the year total 拢200. Of this, you spend 拢130 on personal calls and 拢70 on business calls.
You can claim for 拢70 of business expenses.
If you work from home
You may be able to claim a proportion of your costs for things like:
- heating
- electricity
- Council Tax
- mortgage interest or rent
- internet and telephone use
You鈥檒l need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.
Example
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is 拢1120. Assuming all the rooms in your home use equal amounts of electricity, you can claim 拢280 as allowable expenses (拢1120 divided by 4).
If you worked only one day a week from home, you could claim 拢40 as allowable expenses (拢280 divided by 7).
Simplified expenses
You can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:
- vehicles
- working from home
- living on your business premises