Allowable Expenses

As a self-employed person, you can deduct certain business expenses from your gross income to arrive at your taxable profit. Deducting all allowable expenses is essential for paying the correct amount of tax. However, HMRC applies strict rules about what counts as an allowable expense — not everything you spend on your business can be deducted.

Wholly and Exclusively Test

HMRC's fundamental rule is that an expense must be incurred "wholly and exclusively" for the purposes of your trade. This means the cost must be incurred entirely for business reasons, with no significant non-business element. If an expense has a dual purpose (for example, a suit that you could also wear socially), it is not allowable. The test is applied strictly: if there is even a small private element, the entire expense may be disallowed. However, there are specific rules for hybrid costs like home office and travel.

Travel Expenses

Travel costs for business journeys are allowable, but ordinary commuting (travel between home and a permanent workplace) is not. HMRC allows a flat-rate mileage deduction for business travel: 45p per mile for the first 10,000 miles in a tax year, and 25p per mile thereafter. This covers fuel, insurance, servicing, and depreciation. Alternatively, you can deduct actual vehicle costs (proportionate to business use). Passenger payments of 5p per mile can be claimed if you carry another business traveller. Public transport costs are allowable with receipts.

Home Office Expenses

If you work from home, you can claim a proportion of your household costs. HMRC's simplified expenses scheme allows a flat rate of £6 per week for limited home use, £12 per week for moderate use, and £26 per week for more extensive use. Alternatively, you can calculate actual costs by apportioning rent, council tax, utilities, internet, and insurance based on the number of rooms and hours of business use. Mortgage interest cannot be claimed as a business expense.

Office Costs

General office expenses such as stationery, printer ink, postage, telephone calls, and internet charges are allowable if used for business purposes. For telephone and internet, you can claim the proportion used for business (typically based on call records or usage logs). Office equipment such as a computer, printer, or desk qualifies for capital allowances or the annual investment allowance, rather than being deducted directly as an expense.

Staff Costs

Salaries, wages, and pension contributions for employees are allowable expenses. This includes payments to family members, provided they genuinely work for the business and are paid a market rate. Employer's National Insurance contributions are also allowable. Staff training costs that are directly related to the current business are deductible, but training for a new trade is not.

Professional Fees

Professional fees such as accountancy fees, bookkeeping costs, legal fees (for business purposes), and professional subscriptions to trade bodies are allowable expenses. Fines, penalties, and legal costs related to breaking the law are not allowable. Subscriptions to professional journals and trade publications relevant to your business are deductible.