Allowable Business Expenses for the Self-Employed

An allowable business expense is any cost that is incurred wholly and exclusively for the purposes of your trade or profession. This is the golden rule from HMRC — if the expense is purely for business, you can deduct it from your income before calculating tax.

The key principles are:

• Wholly and exclusively for business. The expense must have a clear business purpose. Personal costs are not deductible, even if they happen to benefit your business.
• Mixed-use items can be apportioned. If something is used for both business and personal purposes (like your mobile phone), you can claim the business proportion. For example, if you estimate 60% of your phone use is for work, you can claim 60% of the bill.
• You must have evidence. Keep receipts, invoices, and bank statements for every expense you claim. HMRC can ask to see these at any time within five years of the 31 January submission deadline.
• Capital vs revenue. Day-to-day running costs (revenue expenses) are deducted from your profits directly. Larger purchases like equipment or vehicles (capital expenses) are handled through capital allowances.

You report your expenses when filing your Self Assessment tax return. You can either list them in categories or claim a single total — but keeping them categorised makes it easier to spot if you are under-claiming.

If you work from home — even part of the time — you can claim a proportion of your household costs. There are two methods:

Option 1: Simplified expenses (flat rate)

HMRC offers a flat-rate deduction based on how many hours you work from home per month:

• 25-50 hours per month: £10/month
• 51-100 hours per month: £18/month
• 101+ hours per month: £26/month

This is the easiest approach and requires no calculation of actual costs. For someone working from home full-time, that is £312 per year.

Option 2: Actual costs (proportional method)

Calculate the total cost of running your home — mortgage interest or rent, council tax, electricity, gas, water, broadband, and home insurance — then work out the business proportion. A common method is to divide by the number of rooms and the percentage of time used for business. For example, if you have a 5-room house and use one room exclusively for work, you can claim 20% of your household running costs.

The actual cost method usually gives a larger deduction than the flat rate, especially if your energy bills are high or you have a dedicated office room. However, it requires more record-keeping.

Important: You cannot claim mortgage capital repayments or any cost that would apply whether or not you worked from home (like your TV licence). If you rent a separate office or coworking space, the entire cost is a straightforward business expense.

Business travel is one of the most valuable deductions for self-employed people. You can claim for journeys that are necessary for your work — but not for commuting between your home and a regular workplace.

Using your own vehicle:

You have two options for claiming vehicle costs:

• Simplified mileage rate: 45p per mile for the first 10,000 miles, then 25p per mile after that. This covers fuel, insurance, road tax, servicing, and depreciation in one simple rate. You just need to keep a mileage log.
• Actual costs: Claim the business proportion of all vehicle running costs — fuel, insurance, MOT, servicing, road tax, breakdown cover, and capital allowances on the purchase price. This requires detailed records but can be more beneficial for expensive vehicles.

Once you choose a method for a vehicle, you must stick with it for that vehicle's lifetime in the business.

Other travel costs you can claim:

• Train, bus, and taxi fares for business journeys
• Flights for business travel (including within the UK)
• Parking fees and congestion charges during business travel
• Hotel accommodation and reasonable meal costs when travelling overnight for business
• Bicycle costs if you use a bike for business travel (20p per mile simplified rate)

You cannot claim: Travel between your home and a permanent workplace, fines or speeding tickets, or the personal portion of any mixed trip.

Most equipment you buy for your business is deductible, either as a direct expense or through capital allowances:

Directly deductible items (revenue expenses):

• Software subscriptions — accounting software, design tools, project management tools, cloud storage, website hosting
• Stationery, printer ink, and office supplies
• Small tools and equipment under a few hundred pounds (there is no strict threshold, but items that last less than two years are usually treated as revenue)
• Domain names, SSL certificates, and online services

Capital allowances (for larger purchases):

Bigger purchases like laptops, phones, cameras, printers, and office furniture are capital expenses. Under the Annual Investment Allowance (AIA), you can deduct the full cost of qualifying equipment up to £1,000,000 per year — so for most self-employed people, you can deduct the entire cost in the year you buy it.

If an item is used for both business and personal purposes, you can only claim the business proportion. For example, if you buy a £1,200 laptop and estimate 70% business use, you can claim £840.

Phone and internet:

You can claim the business percentage of your mobile phone contract and home broadband. If you have a separate business phone line, 100% of that cost is deductible. For a phone used for both purposes, estimate the business proportion based on your call/data usage patterns.

Running a business involves professional and financial costs that are fully deductible:

Professional services:

• Accountant and bookkeeper fees
• Legal fees related to your business (contracts, disputes, debt recovery — but not fines or penalties)
• Professional indemnity insurance
• Public liability insurance
• Professional body membership fees and subscriptions (e.g., RICS, CIMA, ICO registration)
• Trade journal subscriptions

Financial costs:

• Business bank account fees and charges
• Credit card and payment processing fees (PayPal, Stripe, card terminal fees)
• Interest on business loans (but not the capital repayments)
• Hire purchase interest on business equipment
• Bad debts — if a client does not pay an invoice and you have made reasonable efforts to collect, you can write it off as an expense

Marketing and advertising:

• Website design and maintenance costs
• Google Ads, Facebook Ads, and other online advertising
• Business cards, flyers, and printed marketing materials
• Networking event fees
• PR and marketing agency costs

These are often overlooked, especially by newer freelancers. Every pound you legitimately claim reduces your taxable profit — and therefore your tax bill — so it pays to be thorough.

Knowing what you cannot claim is just as important as knowing what you can. HMRC is clear about the following:

• Personal expenses: Clothing (unless it is a uniform, costume, or protective equipment required for your specific trade), personal grooming, non-business meals, entertainment
• Client entertainment: Unlike in some countries, the UK does not allow you to deduct the cost of taking clients out for meals or drinks. You can claim business lunches for yourself when travelling overnight, but not wining and dining clients
• Fines and penalties: Parking fines, speeding tickets, HMRC penalties, and court fines are never deductible
• Everyday clothing: Even if you wear a suit to meet clients, it is considered personal clothing. Only specialist workwear (hi-vis jackets, chef's whites, theatrical costumes) qualifies
• Your own salary or drawings: As a sole trader, money you take from the business is not an expense — it is simply your profit. This is different from a limited company, where director's salary is an expense of the company
• Capital repayments on loans: You can claim the interest but not the principal
• Depreciation: You cannot deduct depreciation in your accounts — instead, you use HMRC's capital allowances system

If you are unsure whether something qualifies, apply the "wholly and exclusively" test. Would you have incurred this cost if you were not running your business? If the answer is no, it is likely deductible. If yes, it probably is not. Keep your receipts organised and use tools like OwnedWork to track expenses as you go — it is far easier than reconstructing a year's worth of spending in January.