When you’re self-employed, you pay tax on your taxable profit—that’s your income after deducting allowable business expenses. But what exactly can you deduct? Let’s break it down.
The Basics: What Can You Deduct?
The general rule is that you can deduct expenses that are incurred wholly and exclusively for the purposes of your business. In other words, personal expenses are off-limits.
To make life easier, we recommend using separate bank accounts for your business and personal finances. This keeps everything clear and reduces the chance of claiming private expenses by mistake or missing valuable business deductions.
Mixed-Use Expenses
Some expenses have both a business and a personal element—for example, if you use your car for both work and personal travel. In these cases, you can claim the business portion as long as it’s clearly identifiable. HMRC offers simplified rates for calculating this.
However, if an expense has a dual purpose that can’t be separated (like everyday clothing worn for work), you won’t be able to claim it as a deduction.
Cash Basis vs. Traditional Accounting
Your method of accounting affects what you can claim:
- Cash Basis: You can claim deductions for revenue expenses and certain capital expenses.
- Traditional Accounting: Only revenue expenses are deductible, while capital expenses are covered by capital allowances.
Typical Business Expenses You Can Deduct
Here are some common expenses you can claim, as long as they’re wholly and exclusively for your business:
- Office costs: Stationery, printing, and phone bills.
- Travel expenses: Fuel, train or taxi fares, and parking.
- Uniforms: Only branded clothing (e.g., with your business’s logo).
- Stock: Goods bought for resale or raw materials for production.
- Business premises costs: Rent, light, and heating.
- Insurance: Business-related policies.
- Marketing and advertising: To promote your services.
The Trading Allowance
If your actual expenses are low, you might benefit from the £1,000 trading allowance. Instead of claiming your real expenses, you can deduct £1,000. If your total trading income is £1,000 or less, you won’t need to report it or pay tax on it.
Simplified Expenses
To save time, you can use HMRC’s simplified expenses for:
- Vehicle costs.
- Working from home.
- Private use adjustments for living in your business premises (e.g., running a Bed & Breakfast).
Why Good Records Matter
Keeping accurate records is essential. Overlook a deductible expense, and you could end up paying more tax than you need to. Make a habit of recording all your expenses promptly and storing receipts safely.
Need Help Navigating Business Expenses?
Understanding what you can and can’t claim as a self-employed individual can feel overwhelming—but we’re here to help! Contact Jon and the team at Jon Davies Accountants for expert advice tailored to your business.
Let us take the stress out of managing your business finances so you can focus on growing your business!
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Any questions?
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