Understanding what does and doesn’t constitute an appropriate self-employed business expense is one of the toughest challenges recently self-employed business owners have to face.
Knowing the difference between an allowable business expense vs. a non-allowable expense can help you avoid not claiming for something you legally have a right to claim for, and having to have an awkward conversation with HMRC should you make an incorrect claim.
Though you should always keep in mind the fact that any expense you claim for must be the result of something that is ‘wholly and exclusively’ for business purposes, the below summary should give you a much better idea of what expenses you can confidently apply for.
It should be noted that you cannot claim expenses on items you purchase to keep and continually use in your business, such as laptops, desks, or vehicles. In the majority of circumstances these can be claimed as capital allowances instead.
Allowable office expenses include your phone bill (business calls only), internet costs, stationary, printing, printer ink cartridges, postage stamps, computer software you’ll be using for less than two years, and computer software you make regular payments for.
You can also claim for the rental cost of your business premises, your insurance, security, electricity, gas, and water bills, and even any repairs and maintenance to your business premises and any equipment therein. It should, however, be noted that purchasing a new business premises is not deemed to be an allowable expense.
If you work from a home office different rules apply based on the number of rooms you work from. Please see our detailed guide on claiming expenses when working from home for more information.
Contrary to popular belief, commuting to and from your place of work every day doesn’t constitute an allowable business expense.
Business travel expenses can only be claimed when you’re travelling between non-permanent work locations with the intention of your trip being ‘wholly and exclusively’ for business purposes; such as when you travel from your place of work to a client’s office.
In these circumstances you can claim travel expenses for bus, train, and aeroplane tickets, as well as taxi fares when public transport is otherwise unavailable. Though you shouldn’t be discouraged from hailing a taxi when necessary, HMRC won’t look kindly upon unnecessarily expensive means of transportation.
If you drive to these locations you can claim expenses for your fuel, parking, hire costs, breakdown cover, insurance, repairs, and the general wear and tear of your vehicle. All receipts and tickets should be retained, and vehicle mileages logged.
Accommodation and Meals
When staying overnight on a business trip you may claim for the cost of your hotel, as well as your evening meal and breakfast in the morning. In most cases you’ll also be able to claim an ‘unreceipted subsistence allowance’ of £5.00 per night.
Though there are no set rules regarding the quality of your accommodation, it’s generally acknowledged that the standard of your hotel shouldn’t exceed that of your own home.
Financial and Legal Fees
All financial and legal fees are deemed to be allowable business expenses, so long as they’re not fines.
The most surefire way to ensure you understand what does and doesn’t constitute an appropriate self-employed business expense is to hire an accountant, such as our experienced professionals here at Tax Agility, to deal with your accounts on your behalf and answer any questions you may have.
All fees paid to your accountant are an allowable business expense, as are the costs of hiring a solicitor, surveyor, and architect for business purposes. You can also claim for business banking costs, loan interest, overdraft and credit card charges, and a number of other banking fees.
If you have bad debts — debts a customer hasn’t paid, you can claim for these as long as you include these bad debts in your business turnover. Your accountant can help you make this claim.
The only clothing deemed to be an appropriate business expense is uniforms and protective clothing.
If you’ve had a uniform made bearing your company logo for you to wear when visiting clients, this is an acceptable expense. If, however, your work clothing could be considered a part of your everyday (non-work) wardrobe, it can’t be claimed for.
If you’ve only been self-employed for a short period the idea of taking on employees may seem entirely alien to you.
If you do start employing people in the future you should know that their salaries, pensions, benefits, and the National Insurance Contributions (NICs) you’ll pay are all deemed to be allowable business expenses, as is the cost of work done by subcontractors, and any agency fees.
That said, the cost of carers and domestic helpers (such as nannies and babysitters) cannot be claimed for.
If you attend a training course designed to ‘update or enhance’ any of your existing skills (such as a writing course for a self-employed writer) this is deemed to be an allowable business expense, as will any travel costs to and from the course location.
If, however, you attend a training course with the intention of learning a new skill that will then be used within your business (such as a self-employed writer taking a course in illustration with the intention of providing illustration services thereafter) this is deemed a capital expense.
If you purchase goods for resale (commonly known as stock), raw materials to turn into stock, or you incur direct costs from the production of goods for resale, you can claim business expenses on these amounts.
Advertising and Trade Subscriptions
You can claim business expenses on all forms of relevant and proportional advertising, such as in newspapers, directories, and online, as well as on postal advertising, producing free samples, and for having a new website developed.
You can also claim expenses on trade journals and professional memberships to organisations as long as they are directly related to your line of work. Gym memberships, donations to political parties, and donations to charity cannot be claimed for.
Opting for Simplified Expenses Instead
If you’re a sole trader or in a business partnership you may wish to use simplified expenses instead, where you pay a flat rate instead of working out all of your business costs.
We’re going to publish a new post about simplified expenses next week.
Claiming Self-Employed Expenses
To claim self-employed expenses you must keep records of all of your allowable business expenses throughout the year and pass these over to your accountant as and when they ask for them.
To speak with an experienced accountant to discuss allowable (and non-allowable) business expenses, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.