Even if you work with an accountant to manage your tax return, it’s essential to understand the basics of allowable expenses. As a sole trader or freelancer, you can claim tax relief on certain business-related costs—what HMRC refers to as “allowable expenses.” These expenses reduce your taxable profit, which means you could significantly lower your tax bill.
For instance, if your annual income is £80,000 and you claim £20,000 in allowable expenses, you’ll only be taxed on the remaining £60,000, leading to substantial savings.
What Are Simplified Expenses?
HMRC also offers simplified expenses, which are flat-rate deductions for specific business costs such as vehicle use, working from home, or living on your business premises. These can help you work out expenses more easily without needing to calculate actual costs.
For a full breakdown, visit Gov.uk to see:
- Allowable expenses if you’re self-employed
- Allowable expenses if you rent out property
Common Allowable Expenses (Using Cash Basis Accounting)
Here are some of the key expenses you can include in your Self-Assessment tax return:
Office Equipment and Tools
Claim for essential equipment like laptops, computers, printers, and business software used for less than two years. However, you generally can’t claim for small tools.
Stationery and Communications
This includes traditional office supplies (paper, pens, etc.) and costs related to postage and printing. You can also claim for business-related phone, mobile, and internet use.
Important: If you use services for both business and personal use, you must reasonably divide the costs and only claim the business portion.
Professional and Financial Services
You can claim for professional advice or services from accountants, solicitors, surveyors, or architects, so long as it’s for business use only.
Also eligible: fees and charges on your business bank account, interest on business loans, and finance costs such as hire purchase or leasing of business equipment.
Staff and Employee Costs
If you employ staff or subcontractors, you can claim for:
- Salaries and bonuses
- Pensions and benefits
- Agency and subcontractor fees
- Employer’s National Insurance contributions
Travel and Accommodation
You can claim for business-related travel (e.g., train, taxi, airfares) and accommodation. The trip must be mainly for business—if there’s a personal element, only the business-related costs are allowable.
Car and Vehicle Costs
Claim for vehicle-related costs such as:
- Fuel
- Insurance
- Repairs and servicing
You can either calculate actual costs or use the simplified mileage allowance. Also allowable (if business-related):
- Parking (not fines)
- Congestion charges
- Breakdown cover
- Hire fees
Food and Clothing
Clothing:
Generally, everyday clothes (including suits) aren’t claimable. However, uniforms or protective clothing are required for your work. So are performance costumes for entertainers.
Laundry:
Costs for washing or repairing business-related uniforms or protective gear can also be claimed.
Food and Drink:
You can only claim food costs if they’re outside your usual routine—e.g., on a business trip. Routine meals during normal working hours aren’t eligible.
Stock and Raw Materials
You can claim for:
- Items bought for resale
- Raw materials used in production
- Direct costs of producing goods
Marketing and Advertising
Allowable expenses include:
- Advertising and promotional materials
- Website costs (hosting, development, maintenance)
- Professional memberships
- Subscriptions to trade publications
Note: Entertaining clients (like business lunches) isn’t considered a marketing expense by HMRC and is not tax deductible.
Pension Contributions
While pension contributions aren’t a business expense, they do qualify for tax relief. You can claim this relief separately on your tax return.