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Understanding allowable and disallowable expenses

by Intuit•99• Updated 4 months ago

Understanding the difference between allowable and disallowable expenses is crucial for managing your business finances and accurately completing your Self Assessment tax return. This article explains the key definitions and outlines the main expense categories you can claim.

Allowable expenses

Allowable expenses are costs incurred 'wholly and exclusively' for business purposes. You can deduct these costs from your turnover to calculate your taxable profit, which in turn lowers your Income Tax bill.

Allowable expenses cannot include any costs related to personal use.

Disallowable expenses

Disallowable expenses are costs that you cannot deduct from your turnover when calculating your taxable profit.

This is typically because they are not for business use (e.g., personal living costs) or fall into specific categories that HMRC does not permit, such as client entertainment. For a comprehensive list, refer to the official HMRC guidance.

Allowable expense categories for self assessment (SA103F)

Below is a summary of common expense categories you will find on the SA103F Self Assessment tax return. We have included the corresponding box numbers and typical QuickBooks Online account types to help you categorise your costs correctly.

Box 17: Cost of goods bought for resale or goods used

QuickBooks account detail types:

Cost of Sales
Supplies and Materials
Shipping, Freight and Delivery

Allowable expenses	Disallowable expenses
Costs of raw materials and any goods bought for resale.	Costs of any goods or materials used for private purposes.
Direct costs of producing goods.	Depreciation of equipment (see Box 29 for Capital Allowances).
Adjustments for opening and closing stock.
Fuel costs (for haulage, taxi, or minicab businesses only).

Box 18: Construction Industry Scheme (CIS) - payments to subcontractors

QuickBooks account detail types:

Cost of Labour - CIS

Allowable expenses	Disallowable expenses
The full amount paid to subcontractors in the construction industry, before any deductions are made.	This category is specific to CIS payments; other expenses should be recorded elsewhere.

Box 19: Wages, salaries and other staff costs

QuickBooks account detail types:

Payroll Expenses
Cost of Labour

Allowable expenses	Disallowable expenses
Salaries, wages, bonuses, and pension contributions for your employees.	Your own salary, drawings, pension payments, or National Insurance contributions.
Employer's National Insurance contributions (NICs).	Payments to staff for non-business work.
Agency fees and subcontractor labour costs (outside of CIS).

Tip: Money you take for personal use is known as 'drawings' and is not an allowable business expense. Ensure you track this separately.

Box 20: Car, van and travel expenses

QuickBooks account detail types:

Motor Vehicle Expenses
Travel

Allowable expenses	Disallowable expenses
Business-related vehicle insurance, repairs, servicing, fuel, parking, and licence fees.	The proportion of any vehicle or travel cost that relates to private use.
AA/RAC membership.	Fines, such as parking or speeding tickets.
Train, bus, air, and taxi fares for business journeys.	Travel costs between your home and your normal place of work.
Hotel and meal costs for overnight business trips.

Tip: Your vehicle insurance should be included here under motor expenses, not in the general insurance category (Box 21).

Box 21: Rent, rates, power and insurance costs

QuickBooks account detail types:

Rent
Utilities
Insurance

Allowable expenses	Disallowable expenses
Rent for business premises.	The cost of buying business premises.
Business rates and water rates.	The proportion of any bill that relates to private or non-business use.
Costs for light, heat, power, and security.
A proportion of your home's utility bills if you use your home as an office.

Box 22: Repairs and renewals of property and equipment

QuickBooks account detail types:

Repairs & Maintenance

Allowable expenses	Disallowable expenses
Costs for repairing and maintaining business premises and equipment.	The cost of improving or altering premises or equipment (this may qualify for Capital Allowances).
Replacement of small tools and equipment.	The proportion of any repair cost that relates to non-business use. Export to Sheets

Box 23: Phone, fax, stationery and other office costs

QuickBooks account detail types:

Office Expenses
Stationery
Subscriptions

Allowable expenses	Disallowable expenses
Business telephone, mobile, and internet running costs.	The proportion of any bill that relates to private use.
Postage, stationery, and printing.
Costs for small office equipment and computer software.

Tip: If you use a single phone for both business and personal calls, review your itemised bill to accurately calculate the business-use portion.

Box 24: Advertising and business entertainment costs

QuickBooks account detail types:

Advertising

Allowable expenses	Disallowable expenses
Advertising in newspapers, directories, or online.	Entertaining clients, suppliers, or customers.
Mailshots, free samples, and website costs.	Hospitality at events. Export to Sheets

Box 25: Interest on bank and other loans

QuickBooks account detail types:

Interest Paid

Allowable expenses	Disallowable expenses
Interest on business bank loans and overdrafts.	Interest on non-business loans.
Alternative finance payments.
If using cash basis accounting, this is limited to £500 per year (combined with charges in Box 26).

Box 26: Bank, card and other financial charges

QuickBooks account detail types:

Bank Charges
Card Charges
Finance Costs

Allowable expenses	Disallowable expenses
Bank, overdraft, and business credit card charges.	The capital repayment portion of any loan or finance agreement.
Interest on hire purchase agreements and leasing payments.	The proportion of any charge that relates to non-business use.
If using cash basis accounting, finance costs are limited to £500 per year (combined with interest in Box 25).

Box 27: Irrecoverable debts written off

QuickBooks account detail types:

Bad Debts

Allowable expenses	Disallowable expenses
Amounts included in your turnover that you will not be paid.	Debts that were not included in your turnover.
	Debts related to the disposal of fixed assets.
	General provisions for bad debts (e.g., estimating 2% of all debts will go bad). Export to Sheets

Tip: Claiming bad debts can be complex. We recommend consulting your accountant for guidance.

Box 28: Accountancy, legal and other professional fees

QuickBooks account detail types:

Legal & Professional Fees

Allowable expenses	Disallowable expenses
Fees paid to accountants, solicitors, surveyors, and architects for business matters.	Legal fees for purchasing property or equipment (these are capital costs).
Professional indemnity insurance premiums.	Fines for breaking the law. Export to Sheets

Box 29: Depreciation and loss/profit on sale of assets

QuickBooks account detail types:

Depreciation

Allowable expenses	Disallowable expenses
You cannot claim depreciation as an expense. Instead, you may be able to claim Capital Allowances on items you buy and keep for your business, such as equipment or vehicles.	Depreciation of equipment, cars, or other assets.
We recommend consulting your accountant to ensure you claim Capital Allowances correctly.	Losses made on the sale of business assets. Export to Sheets

Box 30: Other business expenses

QuickBooks account detail types:

Dues & Subscriptions
Miscellaneous Expense

Allowable expenses	Disallowable expenses
Subscriptions to trade or professional journals.	Payments to political parties or charitable donations.
Other business costs not included in the categories above.	Gym or social club membership fees.
Net VAT payments if you are using the Flat Rate VAT Scheme.	The cost of everyday work clothing.
	Any proportion of an expense that relates to non-business use. Export to Sheets

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