Self-employed: tax allowable expenses

Income tax

Self-employed: tax allowable expenses

By Ian Robinson

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Self-employed: tax allowable expenses

Learn what tax-allowable expenses self-employed people can and can't claim.

If you're self-employed, you can claim expenses against your tax bill - but not all business expenses qualify, so it's important to make sure that your claim is valid.

In general, unless something you buy for your business is a capital asset- such as a computer or machinery (which you claim for under different rules) - you can deduct its full cost when working out your taxable profits. You get immediate tax relief for the full amount. 

Money Helpline expert covers allowable expenses: video

Samm Galloway is a tax expert on the Which? Money Helpline. In this video, she talks through common questions she's asked by people who are self-employed. All Which? members get unlimited access to the Money Helpline as part of their subscription. The number is 01992 822848.

 Here are further details about the key expenses you can claim.

Self-employed: expenses you can claim

Travel and accommodation

Running costs of a car or other vehicle, including petrol, car tax, insurance, repairs and servicing. 

  • If you also use the car privately, you can claim only a proportion.
  • This is usually the ratio of your business mileage to your total mileage.
  • It's worth keeping a log of business mileage for a representative period, as well as all bills.

Travel and accommodation on business trips and between different places of work can also be claimed.

Dedicated business premises

The following can be claimed if you work from dedicated business premises: 

  • Heating 
  • Lighting
  • Cleaning
  • Water rates
  • Rent
  • Business rates, and
  • General maintenance.

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Working from home

If you work from home, you can claim a proportion of costs, such as lighting, heating, cleaning, insurance, mortgage interest, council tax, water rates and general maintenance.

The proportion should be based on, say, the floor area or number of rooms used for business, and the proportion of the time it is used for business if it is not for exclusive use.

Salaries and benefits

These can be claimed for as follows: 

  • Employees' wages and redundancy payments
  • Employer's National Insurance
  • Insurance and pension benefits for employees 
  • Any employee childcare provision you make, and
  • The cost of training employees.

More: National Insurance explained - read our guide to paying National Insurance and the rates that apply to you.

Self-employment: expenses you can’t claim

Travel and accommodation

  • Travel between home and workplace.
  • The cost of buying a vehicle (but may qualify for capital allowances).
  • Meals, except a reasonable amount for breakfast and evening meals on overnight trips.

Premises

You cannot claim the initial cost of buildings, alterations and improvements (such as extensions to house your business) – although such work may qualify for annual investment allowance or capital allowances. 

More on allowances: Self-employed capital allowances - get to grips with how investing in your business can reduce your tax bill.

Salaries and benefits 

If you are self-employed, you cannot claim your own wages, salary or other money drawn from the business. 

You are also excluded from claiming your own National Insurance contributions and income tax, your own pension costs and life insurance.

What is HMRC's definition of self-employed?

HMRC distinguishes between people who work under a 'contract of service' and the self-employed, who work under a 'contract for services'. It uses some standard questions to decide which you are. If you can answer 'Yes' to all or most of the following, you will usually be accepted as being self-employed:

  • Can you hire someone to do the work or engage helpers at your own expense?
  • Do you risk your own money?
  • Do you provide the main items of equipment you need to do your job, not just the small tools that many employees provide for themselves?
  • Do you agree to do a job for a fixed price, regardless of how long the job may take?
  • Can you decide what work to do, how and when to do the work and where to provide the services?
  • Do you regularly work for a number of different people?
  • Do you have to correct unsatisfactory work in your own time and at your own expense?

 

  • Last updated: April 2016
  • Updated by: Ian Robinson