Intuit QuickBooks Small Business Index, December 2024
FINANCE, BUDGETS AND CASHFLOW
Self-employed business expenses you didn’t know you could claim
Expenses sound simple: just record what you earn and what you spend, right?
Somehow, once you’ve entered the world of self-employment, it’s never that easy. Is this £8 lunch a personal or business expense? What can you claim when you’re working from home? And how do allowable expenses relate to Self Assessment?
If you’re self-employed, your business will have various running costs. You can offset some of what you’ve spent against the tax you owe – that is, if they’re allowable expenses and for the business only.
It’s important to understand what allowable expenses you are entitled to when you submit your Self Assessment. In this article, we’ll explain what you can claim as tax relief on your tax return, plus how to do it.
Discover how QuickBooks can enhance your self-employed accounting process today.
Table of contents
Business expenses explained
Any money used in support of your business is a business expense. These range from large expenses, such as rent or a business vehicle, to small expenses, like stationery or business cards. They can also relate to side hustles or freelance work, and each business’ expenses will need to be calculated and submitted separately.
Being self-employed costs money. You’ll need to purchase the tools of your trade and cover any other running costs that your work demands. These “allowable expenses”– can be deducted from your taxable profit – which means you can reduce the overall amount of tax you pay. Other expenses can be claimed under capital allowances.
By claiming business expenses, you can reduce your Self Assessment bill.
Most common self-employed allowable expenses
Allowable expenses, as a rule of thumb, are any costs needed to run your business. On your HMRC Self Assessment tax return, you can’t claim personal expenses.
If an item that’s for personal use appears on the same receipt as a business cost, this part of the cost is known as a disallowable expense. You also can’t claim for any items covered by an insurance policy, or any costs related to the buying or improving of fixed assets (such as buildings) which last for several years.
What can I claim for being self-employed?
Office equipment
This includes phone bills, printing costs, and computer software, as well as smaller things like stationery and postage.
Can I claim a laptop as a self-employed business expense?
Computing equipment such as laptops, PCs, printers can also be claimed as a business expense alongside the software required to make them suitable for your business, provided the software has been in use by the business for less than two years.
Travel expenses
This includes mileage costs, vehicle insurance and fuel. If you are taking a journey that is not trackable through train tickets or meters (i.e. using your own car), you can use simplified expenses to claim on your Self Assessment.
However, this does not include your daily commute to and from work. It’s also worth noting that if a business trip is for business AND pleasure, you can only claim tax on the business part of this trip. And this has to be clearly and completely separate.
Internet & phone bills
If you can clearly show your phone and internet being used for business, this can be claimed back. However, you have to be able to divide these costs from personal use – for example, by being able to prove costs on a separate work phone and laptop.
Clothing
An example of this would be purchasing work uniforms or other special clothing you need to complete your work. Items that you can’t claim for include suits (they’re not a uniform), socks and shoes, or anything you could wear as your everyday clothing.
If you’re a TV or film performer, you can claim back tax on clothing like costumes. You can also include any laundry costs for washing your uniform or special clothing.
Staff costs
This includes salaries and pensions, as well as other tax-deductible costs that are needed to retain a workforce, such as bonuses, benefits, or contractor/agency fees.
Goods purchased for resale
This applies to any raw materials or stock you have purchased which you rely on for your trade. Manufacturing creates a huge range of costs throughout the process, so if you’re a manufacturing company, make sure you include costs of producing goods.
Professional services fees
If you use the services of any professional, such as an accountant or lawyer, these expenses can be claimed, providing this is exclusively for business reasons. The same applies to any business insurance or bank charges that are added.
However, you can’t use this to claim back expenses that have a benefit on your personal life, for example claiming on your own home improvements.
Some costs of running your business premises
If you don’t work from home, day-to-day running costs of running office or shop premises, including heating, lighting, utilities and other amenities, are tax-deductible. This also includes rent, building insurance and security costs for the building.
Unless you’re scaling up as part of business growth – for example if you need a larger office – you can’t claim the initial cost of buying or extending your business premises. You may need to check whether you can claim this as part of capital allowances.
Marketing costs
Any costs associated with marketing and running a website in general can be claimed as expenses. This could include website hosting, online or traditional advertising campaign costs, and membership or subscriptions to trade bodies and publications.
Be careful what you try to claim for – entertaining a third party is not marketing.
Pension contributions
You can’t claim your own pension costs as a business expense, because they are not. But, you are still entitled to tax relief on contributions to your own pension – just ensure you fill the form in correctly when doing your Self Assessment tax return.
It’s also worth checking the official Gov.uk site for a full list of allowable expenses.
Personal versus business expenses
It can be hard to judge allowable expenses, particularly around food and mileage.
Sometimes, only a proportion of an expense is allowable: for example, you may have a monthly train card that you use during work hours, but also outside work in the evening and weekends. In these cases, you’ll need to split the expense between business (an allowable expense) and personal (a disallowable expense).
Another example is food expenses – you can claim back tax on food and drink if it’s a business expense, for example a work trip, but not if it’s just your everyday routine.
If you’re unsure whether an expense is considered business or personal, you can find out more on HMRC’s website, or contact the Self Assessment helpline on 0300 200 3310 for more guidance.
Simplify your Self Assessment process with QuickBooks
Can I claim expenses for working from home?
This is where claiming business expenses for Self Assessment can get complex.
If you’re self-employed, you may use a room in your own home for business purposes. For example, you’re a therapist with a quiet room for clients, an artist with a dedicated studio, or an online freelancer with an office or study that you work in.
You can claim back similar things to business premises on your tax return, such as heating, lighting, and insurance. However, you’ll have to work out the realistic percentage from your bills that you can claim for business (not personal use).
For example, working out the percentage of square metres the room takes up, and the amount of time you use it for work during the month, and deducting the cost.
Capital allowances
You can claim capital allowances if you purchase major assets that your business will use over several years. You can usually deduct the full cost of these items from your profits before tax.
Some items that can’t be claimed as an allowable expense on your Self Assessment but can be claimed as capital allowances, including:
Plant and machinery (cars, computers, tools)
Fixtures (shelves, furniture, fittings)
Structures and buildings (e.g. a larger office)
Intellectual property, patents and research
Repair costs are not considered capital allowances but can be claimed as business expenses. Also, claiming capital allowances on some items, such as a vehicle, means that you cannot make a claim for the same item under simplified expenses.
Simplified expenses
Simplified expenses allow you to calculate some business costs with a flat rate instead of working out the actual costs. These include the costs associated with transportation, working from home, and living in your place of business.
For example, if you’re working from home between 25-50 hours per month, you can claim a flat rate of £10 per month, rather than working out the proportion of your utility bills that qualify as business costs. This rises to £18 per month if you work from home between 51-100 hours per month and up to £26 if it’s any higher than that.
Likewise, instead of calculating the actual costs of buying and maintaining the vehicle you use for business, you can instead claim a rate of 45p per mile for the first 10,000 miles, and 25p per mile thereafter.
Software like QuickBooks designed for self-employed people can automatically track and categorise your business mileage so you don’t need to work out the sums. Just swipe the app to sort personal from work-related trips.
It’s up to you whether you use simplified expenses or not, but if you want to, you must be working as a sole trader or in business partnerships in which no partner is a company, the government website offers a tool which helps you see if simplified expenses or calculating actual costs is the best option for you.
Trading and property allowances
These are the most simplified expenses of all. If you make more than £1000 renting out property or trading goods or services, you have the option of claiming £1,000 tax-free allowance instead of deducting your expenses. If you have money from both income streams, you can claim £1000 for each one.
Claiming self-employed allowable expenses
The government requires you to keep all records of your business income and expenses for five years. This includes sales receipts, business expenses, VAT records (if applicable), PAYE records (if you employ people), and your personal income records. This helps fill in the Self Assessment form with expenses information.
There are no rules on how you must keep records. You can keep them on paper (receipts) or store them digitally in software like QuickBooks.
Self-assessment mileage claims
You can often claim tax relief if you use your own vehicle for work, such as cars, vans, motorcycles, or bicycles, provided the claim is made on a vehicle used for work purposes and during working hours, meaning you cannot claim for travelling to and from work.
How can I track my business expenses?
Staying on top of your business expenses is essential for claiming tax relief when Self Assessment comes around. You can use spreadsheets or collect paper receipts, but it’s easier and less stressful to use accounting software made for sole traders.
Now you know what can be claimed as an allowable expense, make sure you record everything – it all adds up and can make a significant difference to your tax bill.
Submitting allowable expenses for Self Assessment
When you have all your records compiled, you can fill in the total amount on your HMRC Self Assessment tax return. While you don’t generally need to submit proof of expenses in order to claim them, you do need to be able to produce your records if you’re asked to by HMRC.
QuickBooks makes it easy to record your income and Self Assessment allowable expenses. Our mobile app extracts the data from a photo of your receipt and the mileage tracker makes it easy to sort personal trips from business travel. If you connect your bank accounts and credit cards to your QuickBooks, you’ll be able to see all your transactions in one place.
QuickBooks uses machine learning to spot patterns and save you time on your Self Assessment. So once you start categorising your expenses and transactions, QuickBooks will suggest new rules and automatically organise and reconcile them for you, ready for tax time.
If preparing your self-employed allowable expenses for Self Assessment still feels a bit daunting, you could get expert advice from a QuickBooks certified accountant listed in our ProAdvisor Directory.
Business Expenses FAQs
What records of my expenses should I keep?
You should keep as many records of your business related expenses as you can, it all adds up and can save you money. You can keep paper receipts, bank statements, phone bills and utility bills – alongside proof of anything that could be judged ‘personal’.
What is the best way to track my expenses?
The best way to track your expenses is through an accounting app like QuickBooks. This allows you to easily categorise expenses and see how they affect your business finances. Some people prefer to use spreadsheets (or traditional notebooks), but software can help.
What can’t I claim as business expenses?
There are many costs that don’t class as allowable expenses. These include business suits, travelling for pleasure, the initial cost of a building, or your daily commute/food.
Can I claim for training costs?
You are able to claim for training costs, if these are directly related to your current business (not a new career). You can also claim for the cost of training your employees.
How much in expenses can I claim without receipts?
While receipts are generally required to claim expenses against income for tax purposes, HMRC may accept claims without receipts for certain allowable expenses up to a limit. However, this depends on the nature of the expense and the specific circumstances.
It is important to note that while HMRC may allow some expenses to be claimed without receipts, it's always advisable to keep thorough records of all expenses, including receipts and invoices, to support any claims made. This helps to ensure compliance with HMRC rules and provides evidence in case of an audit.
What happens if I get investigated by HMRC?
If you get investigated by HMRC – for example, if they think you’ve claimed tax on something that couldn’t be separated from your personal life – make sure you have receipts and proof. For example, having a separate business phone and laptop.
Read our separate guide for more information about avoiding Self Assessment penalties.
Found this article about self-employed business expenses useful? Using software like QuickBooks is a great way to make sure you stay on top of your expenses – and save time.
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The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.
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