What are Allowable Expenses for Self-Employed in the UK?

Allowable expenses for self-employed people are the business costs HMRC lets you deduct from your income before working out how much tax you owe. In simple terms, if you spend money running your business, you usually only pay tax on what's left after those costs, not on everything you earn. Getting this right can make a real difference to your tax bill, but claiming the wrong things can cause just as many problems.

Below, we explain exactly what counts as an allowable expense, what doesn't, and how to make sure you're claiming everything you're entitled to without falling foul of HMRC.

What are Allowable Expenses for Self-Employed People?

Allowable expenses are costs that HMRC accepts as necessary for running your business. They are deducted from your total income to work out your taxable profit, which is the figure your tax bill is actually based on.

For example, if you earn £40,000 in a tax year and have £8,000 of allowable expenses, you only pay Income Tax and National Insurance on £32,000, not the full £40,000. The golden rule HMRC applies is that a cost must be "wholly and exclusively" for the purpose of your trade. If something is partly personal and partly business, only the business portion can usually be claimed.

What is the Trading Allowance and How Does It Affect Expenses?

If your total self-employment income is £1,000 or less in a tax year, HMRC lets you use the trading allowance instead of claiming individual expenses. This means that income is automatically tax-free, and in many cases, you don't need to register for Self Assessment or tell HMRC about it at all.

If your income is above £1,000, you have a choice. You can either claim your actual business expenses, or you can deduct the flat £1,000 trading allowance instead. You cannot do both. If your real expenses come to more than £1,000, claiming actual expenses will usually save you more tax. If your expenses are low, the trading allowance might work out better simply because it's less admin.

Can You Use the Trading Allowance and Claim Expenses Together?

No. HMRC only allows one or the other for the same self-employment income. If you claim the trading allowance, you cannot also deduct costs like travel, equipment, or office supplies on top of it for that same business. You would need to compare both figures and choose whichever gives you the better result for that tax year.

What Counts as an Allowable Expense?

Most day-to-day running costs of a business are allowable, as long as they meet the "wholly and exclusively" rule. The most common categories include:

• Office costs, such as stationery, printing, postage, and phone or internet bills (the business proportion only)
• Travel costs, including fuel, parking, train fares, and vehicle running costs for business journeys
• Staff costs, such as salaries, subcontractor payments, and employer National Insurance contributions
• Stock and materials, meaning anything bought to make or sell products
• Legal and professional fees, including accountancy costs, indemnity insurance, and legal advice not related to buying property or equipment
• Marketing costs, such as advertising, website costs, and printed promotional materials
• Insurance, including public liability and professional indemnity cover
• Bank and finance charges, such as business bank account fees and interest on business loans

Can You Claim for Working From Home?

Yes, if you work from home for at least 25 hours a month, you can either use HMRC's simplified flat rates or work out the actual business proportion of your household costs. The flat rates depend on how many hours you work from home each month and typically range from £10 to £26 a month. These rates cover things like heating and electricity but do not include phone or internet costs, which need to be worked out separately based on business use.

If you prefer to claim actual costs instead of the flat rate, you would calculate the business proportion of your rent, utility bills, council tax, and mortgage interest, based on how much of your home and time is used for the business.

Can You Claim Vehicle and Travel Expenses?

Yes, but you need to choose one method and stick with it for that vehicle. You can either claim the simplified mileage rate, which covers a set amount per business mile, or work out the actual costs of running the vehicle, such as fuel, insurance, repairs, and a proportion of the purchase cost. You cannot switch between the two methods partway through owning the same vehicle.

Whichever method you use, you'll need to keep a log of your business journeys, including dates, destinations, and mileage, since HMRC can ask to see this if they query your return. Your normal commute from home to a regular place of work does not count as a business journey, so it cannot be claimed either way.

What Expenses are Not Allowable for Self-Employed People?

Just as important as knowing what you can claim is knowing what you can't. Common costs that HMRC does not allow include:

• Personal expenses with no business purpose, or the personal portion of a mixed-use cost
• Client entertaining, such as meals or hospitality for customers
• Everyday clothing, even if you only wear it for work, unless it's genuine protective clothing or a uniform
• Fines and penalties, including parking tickets and HMRC penalties
• The cost of buying property, land, or equipment outright (these are usually claimed separately through capital allowances instead)
• Depreciation of assets, since this is an accounting concept rather than an actual cash cost

Why Do Some Costs Need Capital Allowances Instead?

Large one-off purchases, such as machinery, computers, or a business vehicle, are usually not deducted in full as a regular expense. Instead, they're claimed through capital allowances, which spread the tax relief differently or allow a large chunk to be claimed upfront through the Annual Investment Allowance. This is a separate system from day-to-day allowable expenses, so it's worth treating these purchases differently when you're recording your accounts.

Can You Claim Expenses for Family Members Working in the Business?

Yes, you can pay a spouse, partner, or even your children for genuine work done in the business, and this can be claimed as an allowable expense. However, HMRC expects the work to be real and necessary, and the pay must reflect a reasonable market rate for the job done. You should keep clear records of the hours worked, the tasks carried out, and the payments made. Overpaying, or paying for work that wasn't actually done, is something HMRC can challenge, and doing so may lead to the expense being disallowed along with possible penalties.

Can You Claim for Training and Courses?

You can claim for courses that update or maintain skills you already use in your business. For example, an electrician taking a refresher course on updated wiring regulations would usually be able to claim this cost. However, training that teaches you an entirely new skill unrelated to your current trade is generally not allowable, since HMRC treats this as a personal investment in a new career rather than a cost of running your existing business.

How Do You Keep Records for Allowable Expenses?

You need to keep records of every business expense you plan to claim, including receipts, invoices, and bank statements, for at least five years after the Self Assessment deadline for that tax year. If HMRC opens an enquiry into your return, you'll need to show evidence that the expense was genuinely incurred and that it was wholly and exclusively for business purposes.

Good habits that make this easier include keeping a separate business bank account, recording expenses as they happen rather than waiting until the end of the year, and using simple accounting software or a spreadsheet to log costs by category. This becomes even more important with Making Tax Digital for Income Tax being phased in, which will require many self-employed people to keep digital records and send quarterly updates to HMRC rather than one annual return.

Does It Matter How Much You Earn When Claiming Expenses?

The rules around what counts as an allowable expense are the same regardless of how much you earn. However, your turnover does affect how much detail HMRC expects on your tax return. If your turnover is below the VAT registration threshold of £90,000, you can usually just enter your total expenses as a single figure on a simplified section of your tax return. Above that threshold, HMRC expects a more detailed breakdown of expenses by category on the full self-employment pages.

What Happens if You Claim an Expense HMRC Later Disallows?

If HMRC reviews your tax return and decides an expense wasn't genuinely business-related, they can adjust your taxable profit and issue a revised tax bill for the difference, sometimes going back several years. Depending on the circumstances, this can also come with interest and penalties, particularly if HMRC believes the claim was careless or deliberate rather than an honest mistake.

This is why it's worth being cautious with anything that sits in a grey area, such as mixed-use costs or expenses that only loosely relate to your trade. If you're not sure whether something qualifies, it's far better to check before submitting your return than to deal with a dispute afterwards.

The Bottom Line

Claiming allowable expenses correctly is one of the most effective ways to reduce your tax bill as a self-employed person, but it only works in your favour if it's done properly. Missing genuine expenses means paying more tax than you need to. Claiming the wrong ones can lead to a larger bill later, along with penalties and unwanted attention from HMRC.

If you're self-employed and unsure what you can and can't claim, or you simply want your records set up properly from the start, our team at Micro Entity Accounts can help. We work with sole traders and small business owners across the UK to make sure allowable expenses are claimed correctly, tax returns are filed on time, and nothing is left on the table. Get in touch to talk through your situation and take the guesswork out of your Self Assessment.