Self-employed business expenses: all you need to know

Expenses sound simple: just record what you earn and what you spend, right? Somehow, once you’ve entered the world of self-employment, it’s never that easy. Is this £8 lunch a personal or business expense? What can you claim when you’re working from home? And just what is an allowable expense?

If you’re self-employed, your business will have various running costs. You can offset some of what you’ve spent against the tax you owe – that is, if they’re allowable expenses and for the business only. 

It’s important to understand what allowable expenses you are entitled to when you submit your Self Assessment.

Business expenses explained

Any money used by or in support of your business is a business expense. These range from large expenses, such as rent for your business premises or a company vehicle, to small expenses, like stationery or business cards.

Being self-employed costs money. You’ll need to purchase the tools of your trade and cover any other running costs that your work demands. These “allowable expenses”– can be deducted from your taxable profit – which means you can reduce the overall amount of tax you pay. Other expenses can be claimed under capital allowances.

Self-employed allowable expenses list

Allowable expenses, as a rule of thumb, are any costs needed to run your business. On your HMRC Self Assessment tax return, you can’t claim personal expenses. If an item that’s for personal use appears on the same receipt as a business cost, this part of the cost is known as a disallowable expense. You also can’t claim for any items covered by an insurance policy, or any costs related to the buying or improving of fixed assets (such as buildings) which last for several years.

The list of self-employed allowable expenses includes:

Utilities, mortgage, rent, and insurance

Your allowable expenses can include most of the bills that you will pay to operate your business, such as the rent of your building; interest paid on any mortgages for the property, council tax, business rates charged by your local authority, water bills, electricity, insurance, and any security costs for your business. 

For business owners that operate out of their own home, you may still claim a portion of your utility bills as self-employed business expenses. HMRC states that any expenses claimed back from your home utility bills as a business expense must be “wholly and exclusively for the purpose of the trade”, meaning that you cannot simply file your entire electricity or water bill for the year as a deductible expense.

Here is a simple way to calculate this figure:

• You live in a house with 6 rooms, and only use one of these for your business, eg; a home office. This is one sixth (16.6%) of your home.

• The monthly fee to heat your entire home is £200, so the cost of heating this one room for the entire month is £33.33

• If one month averages as four weeks, per week this cost breaks down to £8.33

• Per day, this comes out as: £8.33 ÷ 7 = £1.19

• Per hour: £1.19 ÷ 24 = £0.5

• You use this room for 5 days each week, for 8 hours per day. This amounts to 40 hours per week, and 160 hours per month. 

• Therefore: 160 (hours) x £0.5 (hourly cost) = £8

• £8 can be considered your total monthly cost for heating this room during your working hours. 

You can now claim £8 back per month as a self-employed allowable expense. 

By accurately calculating these expenses each month, you can maximise how much you can claim in self-employed allowable expenses each year.

Simplified expense calculations

HMRC also offers self-employed taxpayers the option to calculate their deductible working from home expenses by using a simplified flat rate calculator. This allows you to work out how much of your utility bills are for business purposes, without having to portion their use based on which area of your house is used for business purposes.

This can be calculated in the following way:

For example:

If you worked at home for 50 hours a month for 11 months, but worked 70 hours from home on 1 month, you would calculate that as:

• 11 months x £10 = 110

• 1 month x £18 = £18

• You can claim £128 in total

You can also use the government’s simplified expenses tracker to figure out your deductions.

Internet bills, phone bills, stationary and office supplies

You can claim business related telephone, mobile, and broadband costs as self-employed allowable expenses, as well as equipment costs such as stationary, postage, printing, computer software, computer hardware, and ink cartridges for printing.

Again, if you work from home using your own broadband or landline telephone, you will need to calculate the proportion of use for your business. For this reason, you may choose to buy a mobile phone specifically for business use.

Banking costs

Costs incurred through your bank, such as interest rates, business loans, alternative finance payments, overdraft charges, credit card charges, hire purchase interest rates, and leasing payments can all be claimed back as self-employed allowable expenses.

If you use a cash-based accounting method, you may claim back up to £500 in interest and bank charges.

Advertising, marketing, and professional costs

You may claim any business related advertising costs as self-employed allowable expenses. This can include physical advertising such as newspaper adverts and sponsored articles, flyers and promotional material, directories, and magazines; as well as digital marketing costs such as advertisements on websites, marketing campaigns, the creation of a website, SEO costs, and pay per click advertising.

If you pay a membership to a trade body or professional organisation membership, or pay for an accountant, surveyor, solicitor, architect, or other professionals, you can also claim this back as a self-employed expense as long as the membership or services are business related.

Travel expenses

This includes mileage costs, vehicle insurance and fuel. If you are taking a journey that is not trackable through train tickets or metres (i.e. using your own car), you can use simplified expenses to claim on your Self Assessment. 

Staffing costs

Finally, any costs incurred through hiring staff or contractors for your business may be claimed back. This will include employee and staff salaries, bonuses paid to staff, pensions, benefits, agency fees, subcontractor fees, employer’s National Insurance, and any costs incurred for staff training.

Sometimes, only a proportion of an expense is allowable: for example, you may have a monthly train card that you use during work hours, but also outside work in the evening and weekends. In these cases, you’ll need to split the expense between business (an allowable expense) and personal (a disallowable expense).

If you’re unsure whether an expense is considered business or personal, you can find out more on HMRC’s website, or contact the Self Assessment helpline on 0300 200 3310 for more guidance.

What expenses can I claim as a sole trader?

As a sole trader you can claim all of the expenses listed above. Self-employed is simply a label that refers to individuals that are not employed by another person or company, whereas sole trader refers to those that are self-employed and the sole owner of their own business.

Whichever of these terms applies to you, you can benefit from the same self-employed allowable expenses.

Capital allowances

Items purchased for use within the business that have a long-life expectancy are sometimes considered capital in nature.  

Instead of claiming the full cost of the item as an allowable expense in the year of purchase, the cost of the item is split as an allowable expense across multiple years.

You can usually deduct the cost of these items from your profits before tax.

Some items that can be claimed as capital allowances include:

• Plant and machinery (cars, computers, tools)

• Fixtures (shelves, furniture, fittings)

Repair costs are not considered capital allowances but can be claimed as business expenses. Also, claiming capital allowances on some items, such as a vehicle, means that you cannot make a claim for the same item under simplified expenses.

Simplified expenses

Simplified expenses allow you to calculate some business costs with a flat rate instead of working out the actual costs. These include the costs associated with transportation, working from home, and living in your place of business.

For example, if you’re working from home between 25-50 hours per month, you can claim a flat rate of £10 per month, rather than working out the proportion of your utility bills that qualify as business costs. This rises to £18 per month if you work from home between 51-100 hours per month and up to £26 if it’s any higher than that.

You can check the gov.uk website for more information on conditional requirements for simplified expenses.

Likewise, instead of calculating the actual costs of buying and maintaining the car or van  you use for business, you can instead claim a rate of 45p per mile for the first 10,000 miles, and 25p per mile thereafter. Different rates apply to other vehicle types used by the business

Software like QuickBooks is designed for self-employed people to automatically track and categorise your business mileage so you don’t need to work out the sums. Just swipe the app to sort personal from work-related trips. 

It’s up to you whether you use simplified expenses or not, but if you want to, you must be working as a sole trader or in business partnerships in which no partner is a company,  the government website offers a tool which helps you see if simplified expenses or calculating actual costs is the best option for you.

Trading and property allowances

These are the most simplified expenses of all. If you make more than £1,000 renting out property or trading goods or services, you have the option of claiming a £1,000 tax-free allowance instead of deducting and keeping a record of your actual expenses. If you have money from both income streams, you can claim £1,000 for each one.

Claiming self-employed allowable expenses

The government requires you to keep all records of your business income and expenses for five years. This includes sales receipts, business expenses, VAT records (if applicable), PAYE records (if you employ people), and your personal income records.

There are no rules on how you must keep records. You can keep them on paper (receipts) or store them digitally in software like QuickBooks software for accountants.

Submitting allowable expenses for Self Assessment

When you have all your records compiled, you can fill in the total amount on your HMRC Self Assessment tax return. While you don’t generally need to submit proof of expenses in order to claim them, you do need to be able to produce your records if you’re asked to by HMRC.

QuickBooks makes it easy to record your income and Self Assessment allowable expenses. Our mobile app extracts the data from a photo of your receipt and the mileage tracker makes it easy to sort personal trips from business travel. If you connect your bank accounts and credit cards to your QuickBooks, you’ll be able to see all your transactions in one place.

QuickBooks uses machine learning to spot patterns and save you time on your Self Assessment record keeping. So once you start categorising your expenses and transactions, QuickBooks will suggest new rules and automatically organise and reconcile them for you, ready for tax time. 

If preparing your self-employed allowable expenses for Self Assessment still feels a bit daunting, you could get expert advice from a QuickBooks certified accountant listed in our 

ProAdvisor Directory

Now that you understand all of the ways you can claim money back as self-employed allowable expenses, you can begin to track and record all of the above expenses to claim money back each year. 

If you are struggling to stay on top of your business expenses, you can use QuickBooks’ simple bookkeeping software for accountants, sole traders, and limited companies, to maximise the efficiency of your business with our powerful and easy-to-use software. Explore our Plans & Pricing page to begin simplifying your accounting today.

Business Expenses FAQs

What records of my expenses should I keep?

You should keep as many records of your business related expenses as you can, it all adds up and can save you money. You can keep paper receipts, bank statements, phone bills and utility bills – alongside proof of anything that could be judged ‘personal’. 

What is the best way to track my expenses?

The best way to track your expenses is through an accounting app like QuickBooks. This allows you to easily categorise expenses and see how they affect your business finances. Some people prefer to use spreadsheets (or traditional notebooks), but software can help. 

What can’t I claim as business expenses?

There are many costs that don’t class as allowable expenses. These include business suits, travelling for pleasure, the initial cost of a building, or your daily commute/food.

Can I claim for training costs?

You are able to claim for training costs, if these are directly related to your current business (not a new career). You can also claim for the cost of training your employees.

What happens if I get investigated by HMRC?

If you get investigated by HMRC – for example, if they think you’ve claimed tax on something that couldn’t be separated from your personal life – make sure you have receipts and proof. For example, having a separate business phone and laptop. 

Read our separate guide for more information around avoiding Self Assessment penalties.

What’s the difference between limited companies and sole traders?

Self Assessment allowable expenses apply to both limited companies and sole traders, as you can be self-employed and a limited company. Limited companies pay corporation tax, sole traders pay income tax, but both can claim tax relief during Self Assessment.

Allowable expenses for limited companies are slightly different from sole traders.

Found this article about self-employed business expenses useful? Using software like QuickBooks is a great way to make sure you stay on top of your expenses – and save time.

Discover QuickBooks Self-Employed today

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