Expenses if you're self-employed
Overview
If you’re self-employed, your business will have various running costs, also known as ‘expenses’.
You are ‘self-employed’ if you’re either a:
- sole trader
- individual in a business partnership
You can deduct these costs to work out your taxable profit before paying Income Tax as long as they’re allowable expenses.
For example, if your turnover is £40,000 and you claim £10,000 in allowable expenses, you’ll only pay Income Tax on the remaining £30,000 - known as your taxable profit.
Allowable expenses do not include money taken from your business for personal use.
This guide is also available in Welsh (Cymraeg).
Limited companies
If you run a limited company, you are not ‘self-employed’, even if you’re the owner and sole employee.
You can deduct the costs of running your business to work out your taxable profit before paying Corporation Tax.
Costs you can claim as allowable expenses
If you’re self-employed, you can only claim for costs related to business purchases, including:
- 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’.
If you’re not sure whether a business cost is an allowable expense contact HM Revenue and Customs (HMRC).
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy:
- equipment
- machinery
- business vehicles, for example cars, vans, lorries, bicycles
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 capital allowances on the cost of the purchase. 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 calls.
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:
- heating
- electricity
- 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.
Example
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £1120. Assuming all the rooms in your home use equal amounts of electricity, you can claim £280 as allowable expenses (£1120 divided by 4).
If you worked only one day a week from home, you could claim £40 as allowable expenses (£280 divided by 7).
Simplified expenses
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:
- vehicles
- working from home
- living on your business premises