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.
Example Your 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 don’t 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, eg stationery or phone bills
- travel costs, eg fuel, parking, train or bus fares
- clothing expenses, eg uniforms
- staff costs, eg salaries or subcontractor costs
- things you buy to sell on, eg stock or raw materials
- financial costs, eg insurance or bank charges
- costs of your business premises, eg heating, lighting, business rates
- advertising or marketing, eg website costs
You can’t 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
- business vehicles, eg cars, vans, lorries
You can’t 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.
Example Your 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, eg by the number of rooms you use for business or the amount of time you spend working from home.
Example You 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