If you're self-employed — for example a sole trader, freelancer, contractor, or property landlord — you’ll need to complete a self-assessment tax return each year and pay income tax on your profits.

HMRC allows you to reduce the tax you pay by deducting some allowable business expenses from your overall profit.

untied guides you through the process of claiming allowable expenses and you can file your tax return directly from the untied app. Learn more about untied

What is an allowable expense?

HMRC has rules on what an allowable expense is. In general, to be able to get tax relief on an expense, these must be costs that are for business purposes only — things like office equipment, staff and training costs.

They should also be “wholly and exclusively” for your business. Personal expenses are costs not directly associated with your business and are not considered to be allowable expenses. It means you can’t claim everyday clothing or lunch (unless, for instance you’ve gone away to a conference outside your usual routine).

By practice, for some costs which have both business and personal purposes – for instance internet broadband costs and your mobile phone - you can claim an allowable expense for the business part of the cost. HMRC expects you to use a reasonable method to divide these costs between personal and business.

Allowable expenses can also include several things that you may be unaware of, for example donations to charity (including National Trust membership), legal and financial costs, marketing costs and subscriptions.

Here’s a quick reference table below to help you determine whether an expense is ‘allowable’ – and can be used to reduce the amount of tax you pay - or not. If you use untied, you’ll simply tag these as "business expenses” as you go.

 

Self-employed allowable expenses list – at a glance:

 

Allowable expenses Not allowed
  • Office expenses
    • Office equipment (such as computers and software and office furniture
    • Office stationery (paper, printing, ink, postage etc.)
  • Business premises expenses
    • Phone and broadband costs
    • Office /factory space / property rent
    • Security costs
    • Work location overheads (including heating, lighting, water rates, business rates) – see below on working from home
  • Travel expenses
    • Accommodation expenses incurred on business travel
    • Travel and subsistence costs when you’re on business (but not the costs of getting to and from a place of work)
    • Vehicle (eg car, motorbike and bicycle) costs, including mileage - see below for more information)
    • Parking fees
  • Legal and financial costs
    • Finance costs including business loans and charges that you may pay for accepting credit cards
    • Insurance costs
    • Legal and financial costs (including bank charges, accountancy and accounting software fees like untied)
  • Marketing, subscriptions and entertainment
    • Marketing costs (including website etc)
    • Professional subscriptions and memberships
  • Clothing expenses
    • Workwear (including protective clothing, uniforms and branded clothes)
  • Staff costs
    • Salary
    • Training costs
    • Commissions
    • Eye tests and glasses
  • Stock and other things that you buy to sell on
  • Charitable donations
  • Pension contributions
  • Business premises expenses
    • Building an office extension
  • Travel expenses:
    • Commuting mileage - such as between your home and work, and the first job of the day, if you work a delivery round
    • Buying a vehicle
  • Legal and financial costs:
    • Income tax payments, national insurance contributions
    • Your pension costs/charges
    • Other fines and penalties (like parking fines)
    • Self-assessment penalties and interest (but untied helps you avoid these!)
    • Self-assessment tax payments to HMRC
  • Entertainment
    • Entertainment / gifts for customers
  • Clothing expenses
    • Everyday clothes
Any private expenses or everyday food (here's why you can't claim your lunch or tea/coffees during the day)

And now in more detail. What can you claim as self-assessment expenses?

Business premises / office expenses

All your office costs – typically those that are used for two years or less -can be claimed. That includes

  • office furniture and equipment
  • printing, postage, stationary, printer ink
  • IT costs (eg any annual maintenance contracts, repairs and software costs)
  • Phone and broadband costs
  • Office /factory space / property rent
  • Security costs
  • Work location overheads (including heating, lighting, water rates, business rates)
  • Repairs and maintenance

Working from home

If you work from home, you can claim either a business proportion of your costs of electricity, gas and other utilities . The easiest way to do this is via fixed rate according to how much you’re working at home. If you're on untied Pro, we'll help you do this with a quick wizard. You can also claim a share of your broadband internet bill.

Building an office extension is not an allowable expense as this is adding value to your house …😊

Travel expenses

Business travel costs are allowable expenses – you can’t claim to and from a usual place of work.

Vans, cars, motorbikes and bicycles

If you have a vehicle that is used in your business, you can claim expenses for this. Most self-employed people will be using their own private vehicle for business purposes (untied tip - make sure that your insurance covers you!). In this case, you can claim for business mileage (most users find that a mileage rate is the easiest way to claim for these costs) or claim the business proportion of the costs (noting that there are special rules for cars). For more information on this, go to our helpful car, mileage and fuel article and our tax tea break video below on claiming fuel or mileage.

Tax relief can also be claimed for the business proportion of:

  • parking costs
  • congestion charges.

Professional, legal and financial costs

Legal and other professional fees can count as allowable business expenses. You can claim costs for:

  • accounting software fees (like untied) – see our tax tea break video below
  • professional advisers including if you use an accountant alongside untied
  • professional indemnity insurance premiums, employee liability and other general business insurances
  • bank, overdraft and credit card charges
  • interest on bank and business loans
  • hire purchase interest
  • leasing payments
  • alternative finance payments, for example Islamic finance

 

You cannot claim for:

  • fines or penalties (like parking fines)
  • other fines for breaking the law
  • your income tax, national insurance contributions – see our tax tea break video below
  • your pension costs
  • self-assessment penalties and interest (but untied helps you avoid these!)
  • self-assessment tax payments to HMRC

 

Marketing, subscriptions and entertainment

You can claim allowable business expenses for some marketing and subscription costs as part of your allowable expenses. These include:

  • advertising in newspapers or directories
  • bulk mail advertising (mailshots)
  • free samples
  • website costs
  • trade or professional journals
  • trade body or professional organisation membership if related to your business

You cannot claim for:

  • entertaining clients, suppliers and customers
  • event hospitality
  • payments to political parties
  • gym membership fees
  • donations to charity - but you may be able to claim for sponsorship payments

Clothing

The cost of clothing that is not part of an ‘everyday’ wardrobe can be claimed against tax. This would include uniforms for the police and nurses for example. Clothing with an embroidered company logo would also fit the uniform definition. Plus PPE, protective clothing and the costs of clothing acquired for a film, stage or TV performance and film premieres.

Staff costs

Staff costs are one of the main, if not the main, cost for many businesses. In general the costs associated with employing staff are tax deductible. The general rule is that for business expenses to be deductible they must be incurred wholly and exclusively for the purposes of the business. This will include:

  • bonuses
  • pensions
  • benefits
  • agency fees
  • subcontractors
  • employer’s national insurance
  • training costs to maintain your and your employees' expertise

Reselling goods

You can also claim tax back on:

  • items you resell, such as stock
  • raw materials that you use to make your products
  • direct costs of producing goods

Just like with other expenses, you cannot claim items you initially bought for personal use but are looking to sell. You are also unable to claim the depreciation expenses of equipment you own and are looking to sell.

And finally

You cannot claim private expenses or everyday food or snacks. See our tax tea break video below which explains why. 

untied tip if your expenses are less than £1,000

Expenses are only worth tracking if they are greater than £1,000 a year ... the reason is that you're allowed to claim up to £1,000 as an allowance without needing paperwork. If you're an untied user then this is claimed automatically.

There is one thing to note - you can't create a loss by doing so ... it means that if you're earning £5,000 you can claim £1,000. If you're earning £800, you can claim £800.

Running a business is expensive. Thankfully, claiming back allowable expenses can alleviate some of the financial pressure that goes hand in hand with being self-employed. By staying organised and keeping accurate records of your expenses – you can do this easily through untied - submitting your allowable expenses returns to HMRC should be a breeze. Sign up here!

 

And for more useful information, click here to find out what the difference between being a sole trader and a limited company is: https://www.untied.io/untied-blog/sole-trader-vs-limited-company

 

 

 

Related Posts

Warning about adverts promising tax back - too good to be true

Over the course of the last few weeks we have been contacted by users who have seen adverts such as this one, suggesting that people can claim tax back worth £624. They've asked why untied's COVID section doesn't have the same effect. We're warning our users that this...

How to report rental income on jointly owned properties

If you’re wondering how you should report rental income on jointly owned properties, this article will hopefully help guide you through the maze.   Jointly-owned property is where a property is owned by more than one person. If it’s a property that you rent out, it can...

Tax implications when you have buy-to-let properties

If you are buying your first property to rent out or if you are a seasoned buy-to-letter with a portfolio of houses, you’ll need to be well-versed in terms of what you’ll be taxed on and need to declare to HMRC. And that is where untied comes in – we’re here to help...