If you’re 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’re allowable expenses.
ExampleYour turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 – known as your taxable profit.
Allowable expenses do not include money taken from your business to pay for private purchases.
If you 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 company benefit.
Costs you can claim as allowable expenses
- 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 £1,000 tax-free ‘trading allowance’.
Contact the Self Assessment helpline if you’re not sure whether a business cost is an allowable expense.
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, for example:
- business vehicles, for example cars, vans, lorries
You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.
If you use cash basis
If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. 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.
ExampleYour mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business.
You can claim for £70 of business expenses.
If you work from home
You may be able to claim a proportion of your costs for things like:
- Council Tax
- mortgage interest or rent
- internet and telephone use
You’ll 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.
ExampleYou have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
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:
- working from home
- living on your business premises