Self Employed – What are allowable business expenses?

With Allchurch & Co, Chartered Accountants

When we take on new clients, this is one question that we often come across. Even clients who have been in business a number of years, can find that they don’t have a clear understanding of what costs they can put through their business as allowable business expenses.

Allowable business expenses can be deducted from your income to work out your taxable profit, therefore it is worth knowing exactly what is allowable to ensure you aren’t paying too much tax.

This article is based on allowable expenses for a sole trader or self-employed individual. Look out for future articles on expenses that can be claimed when operating through a limited company.

Below we have listed costs which can be claimed as an allowable expense.

  • Travel costs, such as fuel, parking, train fares
  • Clothing costs, such as uniforms or protective clothing
  • Office costs, such as phone bills, stationery
  • Staff costs, such as salaries or subcontractors
  • Things you buy to sell on in the business, such as inventory or raw materials
  • Financial costs, such as insurance, bank interest and charges
  • Costs of your business premises, such as heating, lighting and business rates
  • Advertising or marketing, such as website and social media platform costs

What happens if you incur expenditure which is for both business and personal?

You are only able to claim for costs which relate to the business, therefore if there are costs such as a mobile phone, which are used for both, then you will have to apportion this to reflect the business and personal usage, and only claim for the business usage.

Working from Home

If you work from home, then you are allowed to claim a proportion of your bills as allowable expenses. This includes heating, electricity, internet and telephone, mortgage interest or rent and council tax.

You will need to find a reasonable method for calculating the right proportion of the bills to claim.

A way of doing this could be by working out how many rooms are in your home, and what proportion of the time you use your office space for work and dividing your full annual bills by these to work out a percentage.

An alternative method is to use HMRC’s simplified expenses, a flat rate based on the number of hours per month you work from home. This is likely to be less but will save you time.

What you can’t claim for

Below we have listed some items which are often mistakenly claimed for but aren’t actually allowable expenses.

  • Parking/Speeding fines
  • Client entertaining
  • Everyday clothes (even if you wear them for work)
  • The repayments on Loans or finance agreements
  • Any goods bought for private use
  • Carers or domestic help, e.g. nannies
  • Travel between home and work

Office, Property and Equipment – Capital allowances

Capital assets include items you buy to use in your business such as equipment, machinery, and cars or vans for business purposes. These items are not classed as ‘allowable expenses’ for tax purposes, however these will attract tax relief in a different way.

You may be able to claim the full value of an item, providing it qualifies for the Annual Investment Allowance (AIA). There are certain items that can’t be claimed with the AIA – those owned and used previously or given to the business, as well as vehicles.

Some plant equipment and machinery can be claimed as ‘First Year Allowances’ during the first year of its purchase. This can be claimed on top of the AIA as they don’t contribute towards the AIA limit. There are also ‘Writing Down allowances’ which is where a proportion of the items value is deducted each year, this is particularly useful if you’ve reached the AIA limit or the item doesn’t meet the criteria.

*On the 01/01/19 The AIA has gone up from £200,000 to £1,000,000 for 2 years.

*If you operate as a Sole Trader on the ‘Cash basis’ then you would expense capital items (except for cars)

If you want to know more about anything you have read in this month’s article, please do not hesitate to get in touch.

Allchurch & Co Chartered Accountants

07825 232218


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