Business expenses: allowable for tax

Capital and revenue expenses

Business expenses fall into one of two categories, they are either a revenue expense or a capital expense.

A capital expense is usually a larger item of expenditure incurred to purchase an asset that you would expect to use in the business for a reasonable period of time and which you would expect to have an enduring benefit for the business. There is no fixed time set out in law, but you would expect that asset to last for longer than a year, for example a computer or office shelving.

A revenue expense is expenditure on something that lasts for a shorter period of time and is often used up by your actions. For example, ink cartridges for your printer or stock that you sell are two examples of revenue expenses. Most day-to-day expenses will be revenue expenses.

Usually, revenue expenses are potentially allowable business expenses (in full or in part) for tax purposes.

Typically, capital expenditure may qualify for capital allowances. However, if you are using the cash basis of accounting, some capital expenditure may effectively be treated in the same way as revenue expenditure.

Allowable business expenses

Revenue (trading) expenses must have been incurred “wholly and exclusively” for the purposes of running the business to be allowable for tax purposes. This means that the costs must be incurred while actually performing the business or trying to attract more business. There are special rules for pre-trade expenses.

Not all expenses are allowable for tax purposes. These may be called disallowable expenses or expenses to be added back. As well as this, there may be some expenses in your accounts that are partly for business purposes and partly for personal purposes. No expenses for personal purposes are allowable.

To exclude the expenses that are not allowable you might need to make some adjustments to the profit shown in your accounts. See our page Calculating self-employed profits for more information.

We look at various types of revenue expenses and the extent to which they are tax allowable in the section Common expenses below.

HM Revenue & Customs' (HMRC) helpsheet HS222 How to calculate your taxable profits contains a useful table of the most common allowable and disallowable expenses.

If your allowable business expenses are low, you may wish to claim the trading allowance instead.

If HMRC decide to check your tax return you may be asked to provide evidence that firstly, you actually incurred an expense and secondly, the expense was wholly and exclusively for your business. You should only include business expenses – if HMRC were to challenge the expenses included on your tax return and they were not accurate then you could be subject to penalties.

If you are a disabled person

If you are a self-employed disabled person, there is no blanket tax exemption or deduction for extra costs you incur on account of your disability. As explained above any expenditure which is incurred “wholly and exclusively” for business purposes can be deducted from your taxable business income. Therefore, this could include the cost of reasonable adjustments, such as adjustments made to your office premises to accommodate you as well as books in special formats and specialist equipment.

If you receive a grant under the government’s Access to Work scheme to cover specific expenses, when you prepare your accounts you must include the grant money as income as well as claiming the business expenses as allowable expenses.

Reporting expenses

You will generally need to tell HMRC about your expenses when you complete your tax return. Whether you have to tell them just your total expenses or list your actual expenses depends on your turnover (sales) and other circumstances.

You can use the short version of the self-employment pages of the tax return (SA103S) if your turnover is under the threshold of £85,000 (for 2023/24 and for a full tax year) and provided certain other circumstances do not apply. Have a look at the notes relating to these pages on GOV.UK for the full list. Otherwise you will need to complete the self-employment full version supplementary pages SA103F.

You need only enter the total figure of your allowable business expenses in the self-employment short version Supplementary Pages SA103S. However, make sure you keep details of the expenses you claim in case HMRC make enquiries into your tax return.

If your annual turnover in your business is less than £85,000 (for 2023/24 and for a full tax year), but because of your circumstances you still have to complete the full self-employment pages, you need only enter the total figure of your allowable business expenses. However, make sure you keep details of the expenses you claim in case HMRC make enquiries into your tax return.

If your annual turnover is more than £85,000 (for 2023/24 and for a full tax year) you will need to show your actual expenses, grouped within specific categories, in the self-employment (full) pages.

Looking at SEF2 of the self-employed pages for 2023/24 you can see that there are two columns for each expense – the left-hand column is where you will include the total expenses or costs and the right-hand column is for any amounts that are not allowed but are included in the total in the left-hand column.

The disallowable expenses should be totalled.

Common expenses

Below we look at some of the expense categories on page SEF2 in a little more detail. The box numbers shown here refer to the boxes on the full version of the self-employment supplementary pages of the paper return (SA103F) for 2023/24.

Costs of goods bought for resale or goods used (boxes 17 and 32)

If you use the accruals basis when preparing your accounts, you must value your stock on hand at the end of your accounting period for your accounts. You will normally do this by doing a stock-take at the year end.

Your stock must be valued at the lower of its cost to you or the amount you would get if you sold it. You will need to include any work in progress and raw materials you have received but not yet paid for.

To work out your cost of sales:

• take your stock value (and that of any work in progress) at the start of the accounting period, and
• add any raw materials or stock you have bought during the period, then
• deduct what remains at the end of the accounting period.

If you are using the cash basis of accounting, then you do not need to calculate your closing stock position.

Sometimes small business owners take stock to use personally. If the business is using the cash basis, then the stock can be accounted for at cost price.

Under the accruals basis, if any business stock is taken for personal use, the principles set out in the Sharkey v Wernher case stipulate that this stock must be accounted for at market value at that time, although sometimes this can be complicated to calculate.

Wages, salaries and other staff costs (boxes 19 and 34)

Wages costs can include any wages for your spouse or another member of your family provided that they do genuinely work for the business and their pay (which must be at least the National Minimum Wage) is reasonable for the amount of work they do. You should be able to show that the wages were actually paid – for example, by showing entries through the business bank account.

On the other hand, your own drawings from the business cannot be included as wages/staff costs. Remember that if you pay yourself a ‘salary/wage’ from your business this is still drawings as you cannot be an employee of your own self-employed unincorporated business.

Staff entertaining costs (for example, a staff Christmas party), are also allowable expenses which can be included under this heading.

Car, van and travel expenses (boxes 20 and 35)

Expenses incurred while travelling for business purposes will generally be allowable in most circumstances. However, travel between home and your business premises will usually be regarded as ordinary commuting and so is not allowable. 

Travel (including accommodation and subsistence)

Expenses incurred on travel while running your business includes:

• air, rail or taxi fares,
• hotel accommodation,
• meals connected to an overnight stay, whether included in your hotel charge or not, and
• additional subsistence expenses such as expenditure on meals where your work involves substantial travelling or where you need to make one-off journeys that are not part of your normal business activities

The costs of most meals apart from those mentioned above will not be allowable expenses.

Travelling to work

If you tend to work at one or two different sites during the year and there is a pattern – these one or two sites will be your normal working place and the cost of travelling between home and such places will likely be disallowed, as it is just ordinary commuting.

If your home is your business base (you may at times work there, keep your business records, materials, tools there etc.) and you work at many different sites during a year, any travel from home to the sites should be regarded as allowable travel.

Where you travel regularly at your own expense to a work ‘base’ (for example, to receive instructions) and then are conveyed (at the contractor’s expense) to another location (or locations), you will have no allowable travel costs.

For more information on these travel expenses, see this HMRC guidance.

Example - travel expenses

Daniel is a self-employed electrician. He has been hired by a company building new houses to work on their site. The work is expected to last 6 months. As his presence there is ongoing and regular and predictable, his travel expenses will not be allowable. If Daniel does other work for example for domestic customers in addition to his other work – his travel expenses to and from them should be an allowable expense.

Example - travel expenses when visiting customers

Leno is a self-employed granite fitter. He fits granite worktops in different premises every day, but for Great Granite Ltd. He visits five or ten customers a week to measure or fit jobs. All of Leno’s travel expenses should be deductible (even though some jobs take him several days or weeks to complete – for example, if he is fitting out a hotel).

Car and/or van expenses

Only the business element of motor expenses relating to running a vehicle used in your business are allowable expenses. These include:

• insurance,
• servicing,
• repairs,
• road tax,
• fuel,
• hire and leasing charges,
• parking expenses such as annual parking permits (see below for parking charges),
• membership of a vehicle breakdown service, such as the AA or RAC or similar,
• the cost of vehicles other than cars if you are using the cash basis.

In order to work out the allowable business proportion of vehicle running costs, you should keep records of all journeys in the vehicle for a typical representative period of say 1-3 months and then you will be able to see what percentage of the overall miles in the period relate to business trips. If say, roughly three quarters of the journeys were business related then you would calculate your motor expenses by adding up all the vehicle running costs in the accounting period and claiming 75% as business related.

An alternative way to claim tax relief for vehicle expenses is to claim a flat rate mileage allowance. This is designed to be a simpler way to get tax relief for motor expenses however it may not always be advantageous, so it is a matter of personal choice as to which you decide to use. This is explained in detail below under the heading Simplified expenses.

Expenses that relate directly to a business journey, such as parking charges, tolls, congestion charges, ULEZ and other clean air zone charges will not need to be apportioned. However, parking fines are not allowable for tax purposes. 

Example - motor expenses

Jelena is a self-employed mobile hairdresser. She visits a client in London and has to pay £2.50 to park her car for an hour, and also £15 congestion charge for driving into London. As Jelena’s car is quite old and doesn’t meet the Ultra Low Emissions levels, Jelena also has to pay a £12.50 ULEZ charge. As all the charges relate to a wholly business journey, the total costs of £30 are allowable in full.

Remember the actual cost of buying vehicles for your business is not an allowable expense if you are using the accruals basis but you may be able to claim capital allowances instead. If you are using the cash basis, then the cost of buying cars is not an allowable expense but you can usually claim capital allowances instead.

Rent, rates, power and insurance costs (boxes 21 and 36)

In addition to rent for specific business premises, expenses when working from home can also be allowable expenses under this heading.

Working from home

You can claim a proportion of your household expenses such as heat and light, council tax, water rates, rent or mortgage interest and certain repairs when you work for yourself from home. So, if your house has four rooms, excluding the kitchen and bathroom, and you use one room partly for business purposes, you may be able to claim up to one quarter of those costs.

If you own the house you are working from, you need to be aware of a specific tax rule. Normally when you sell your home, there is no tax to pay on any profit that arises. If you have used any part of your house exclusively for business purposes, then a proportion of any profit would become liable to tax. Usually, rooms are not used exclusively for business purposes so this may not be an issue. It does mean, though, that you may need to be careful to restrict the claims for household expenses you make. For more information see our page: Selling your home.

Alternatively, you can use one of the simplified expenses which allow you to claim household expenses using flat rate allowances to save you time in calculating the business proportion of these costs. You can only claim flat rate expenses for working from home if you work there for at least 25 hours per month. The different types of flat rate allowances are explained in detail in the section on Simplified expenses below.

There is more information on what expenses you can claim when running a business from your home if you decide not to use the simplified expenses flat rate allowance in HMRC’s Business income Manual. There are also several examples of how home-running costs may be apportioned on a reasonable basis in HMRC's Business Income Manual.

Phone, fax, stationery and other office costs (boxes 23 and 38)

Typical office expenses are allowable expenses for tax purposes. These include:

• telephone, broadband, fax,
• postage, stationery and printing,
• costs of trade or professional journals and subscriptions,
• courier services,
• general office expenses,
• costs of insurance not included elsewhere,
• any other similar recurring costs which arise in running the business, and
• the cost of computer software you use in your business which you obtain under a regular licence fee, and in addition any computer software with a limited lifetime of generally less than two years (any other software is usually capital expenditure on which you can claim capital allowances if you are using the accruals basis).

Payments to political parties and most donations to clubs, charities, churches, etc, are not allowable expenses.

Advertising and business entertainment costs (boxes 24 and 39)

Business advertising is usually an allowable expense, however costs of entertaining and hospitality are generally disallowable expenses apart from the costs of entertaining staff. But if staff entertaining arises as part of business hospitality – for example, if a member of staff takes a customer to lunch – this is business entertaining and is disallowable. There is more information on GOV.UK.

Interest on bank and other loans (boxes 25 and 40)

Interest on a business overdraft or business loan from a bank or other lender including any arrangement fees, are allowable expenses. If you elect to use the cash basis of accounting, up to and including the tax years 2023/24, you can only claim up to £500 in total of interest and finance charges (there are exceptions to this, as the payment of interest on business purchases is allowable under the cash basis and not included in the £500 limit, for example, interest on trade purchases and interest on hire purchase for plant and machinery would be allowable even if the costs total above £500).

Often loan repayments will be made up of amounts of both interest and capital. The capital part of loan repayments is not allowable. You will usually need a statement to show the breakdown of payments between capital and interest.  

Irrecoverable debts written off (boxes 27 and 42)

If you are using the cash basis, you will automatically be receiving tax relief for any bad debts as you only account for sales income when you receive payment. Therefore, you will not need to make any adjustments to your tax return for any bad debts.

However, under accruals basis accounting, as you will have accounted for the income when the sales transaction occurred you will need to make an adjustment in your accounts for any bad debts. This means you will have an expense for the bad debt which will reduce your profit for the income you will no longer receive, this is illustrated in the example below.

Example – bad debts

Olivia supplies cafés with baking products and is owed £500 from one business which completely stops trading and cannot afford to pay any of the money they owe her. As Olivia prepares her accounts using the accruals basis, she would have included £500 in her total sales income and so as part of her accounts she will have an additional expense of £500 as a bad debt.

You can only receive tax relief on specific bad debts, such as a particular customer who has ceased trading or informed you they cannot pay your invoice. You can claim bad debt relief in this way whenever it becomes clear that you will not be paid. This could be in the same accounting period as the invoice was raised or it could be in a later accounting period.

If you claim bad debt relief for a particular invoice as you do not expect to be paid, but then you do receive payment from the client or customer sometime later, the invoice will need to be brought back into your accounts as income in the accounting period in which you receive the payment. If you only receive partial payment of the amount owed, then only a sum equal to the payment received will need to be brought into your accounts as income.

There is no tax relief for a general bad debt expense, for example you estimate that a quarter of your customers who owe you money (your debtors) will be unable to pay – you cannot include a bad debt expense on your tax return for 25% of your debtors.

Accountancy, legal and other professional fees (boxes 28 and 43)

Fees charged by accountants, solicitors, surveyors, architects, stock takers and other similar costs for business related work are allowable business expenses. Debt recovery costs are also usually allowable.

Legal expenses involved in buying premises or equipment are treated as part of the total cost of the premises or equipment. If you are using the accruals basis and capital allowances can be claimed on the expenditure these legal costs are included in the total spend on the asset involved. If you are using the cash basis and you can treat the cost of the equipment as an allowable expense, then you can also treat the associated legal expense as an allowable expense.

Costs and fines for breaking the law or any other illegal acts are not generally allowable.

Other business expenses (boxes 30 and 45)

Any expenses which you cannot include in boxes 17 to 29 should be included in box 30. This might include:

• contributions to business link organisations, local enterprise agencies, training and enterprise councils, and similar
• pre-trading expenditure – allowable revenue expenses that are treated as if incurred on the date you start trading
• training expenses – however, where attendance at a training course is intended to give you new expertise, knowledge or skills then the expenditure is a capital cost, so is not allowable as a deduction from profits (particularly where it brings into existence a recognised qualification). On the other hand, where attendance is merely to update expertise and knowledge which you already possess, the expenditure is normally regarded as revenue expenditure and will be deductible if it is a training expense.
• flat rate scheme VAT payments – if you are a VAT registered business using the flat rate scheme for VAT purposes
• some expenses for clothing such as protective safety clothing or uniforms, but not the cost of any ordinary clothes you buy, even if you only use them for work

Any non-business element of any expenses in box 30 must be disallowed and so included in box 45.

There is useful commentary on which expenses are allowable and which are disallowable on pages six to eight of the self assessment self-employment full version supplementary pages notes for 2023/24.

Simplified expenses

There are three types of expenses where you can claim a flat rate allowance for the expense rather than the actual cost or an apportionment of the total cost (when there is both business and private usage). These flat rate allowances are called simplified expenses and were designed to make it easier for the self-employed or partnerships (where all the partners are individuals) to keep business records and prepare their tax returns.

However, it may not always be preferable to claim the simplified expenses as you may be able to claim a greater amount by using the actual cost, although it may be more complicated and/or time-consuming to calculate the actual business expense.

The three types of simplified expenses are for:

• business mileage costs,
• working from home, and
• living in your business premises – for example, if you run a guest house and live on site.

We look at each of these below.

Note that there is a simplified expenses checker on GOV.UK which is a guide as to whether you will be better off using a flat rate allowance compared to apportioning expenses. Be careful – these checkers are only a guide and accurate information must be used in order to get a reliable result.

Motor expenses

The simplified expenses rules for motor expenses allow you to claim a flat rate amount based on the number of business miles in the accounting period, instead of the business proportion of the total vehicle running costs together with capital allowances, if appropriate. This method is explained above under the Car, van and travel expenses heading above.

For the 2023/24 and 2024/25 tax years the mileage rates are as follows:

• Cars and good vehicles – 45p per mile for the first 10,000 business miles
• Cars and goods vehicles – 25p per mile above 10,000 business miles
• Motorcycles – 24p/mile

If you use the flat rate expense rules, you will need to keep a record of the number of miles you travel for business, but you will not need to keep track of your vehicle running and repair costs.

You can still claim all other travel expenses (for example train journeys and car parking) in the usual way.

You do not have to use the flat rate expense for all your vehicles. However, once you have chosen to use them for a specific vehicle you must stick with this approach for as long as you use that vehicle for your business.

If you have already claimed capital allowances for a vehicle you cannot use the mileage rate for it.

Expenses when working from home

If you work from home, the simplified expenses rules allow you to claim a flat rate allowance to cover household expenses to save you time in calculating the business proportion of these costs.

You can only claim flat rate expenses for working from home if you work there for at least 25 hours per month. The rates for the 2023/24 and 2024/25 tax year are as follows:

• 25 to 50 hours/month – £10/month
• 51 to 100 hours/month – £18/month
• 101 or more hours/month – £26/month

This is instead of actual expenses – for example, the business proportion of utilities.

In addition to this, you can still claim a business proportion of household expenses for example for council tax, mortgage interest costs and the internet.

These flat rate allowances are relatively modest amounts and so may result in a smaller claim than if you claim an appropriate proportion of your actual costs, but they are simpler to calculate and would not be subject to scrutiny by HMRC in the event of an enquiry provided they have been calculated correctly.

Flat rate allowances where you live on your business premises

If you live on your business premises, for example your business is running 'Bed and Breakfast' accommodation, you can use the flat rate adjustment to calculate your personal expenditure (for example, utility costs and food). This flat rate allowance is then deducted from the business’ actual costs so that only the business cost is included on your self assessment tax return. The flat rate does not include costs such as mortgage interest, council tax and business rates; these will have to be adjusted for on your self assessment tax return in addition to the fixed rate adjustment.

The fixed rate adjustment is based on the number of occupants at the business dwelling:

• 1 occupant: £350 per month
• 2 occupants: £500 per month
• 3 or more occupants: £650 per month

For more information on this simplified expense see HMRC’s Business Income Manual.

Remember, you are not obliged to use this standard deduction; you can continue to use an apportionment of actual costs between personal use and business use of the business property if you prefer, for example if it is more beneficial.

More information

Our Self-employment Guide is intended to supplement the material in this section. We wrote this guide to help advisers (non-tax) who advise low-income self-employed individuals and also for self-employed people who want more detailed information in one accessible place. The guide explains the less common tax rules and contains more detailed information including examples of accounts using the simplified expense rules and a case study showing how to prepare accounts using the simplified expenses for working at home and motor expenses.

HMRC helpsheet HS222 ‘How to calculate your taxable profits’ contains a useful table of the most common allowable and disallowable expenses.

There is more information on the simplified expenses on HMRC’s Business Income Manual.

HMRC have produced a series of short films on business expenses, showing HMRC’s view of expense rules.