Further comments on business expenses

Updated on 24 April 2017

This page aims to provide you with some extra guidance on some of the more common business expenses you may have, but this list does not cover every situation or every expense.

The box numbers shown here refer to the boxes on the self employment pages of the paper return for 2017/18.

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

Generally allowed expenses:

At the end of your accounting period you will normally have a stock take if you are a manufacturer or a retailer of goods.

Your stock is valued at its cost to you or the amount you would get if you sold it whichever is the lower. 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 period; and
  • add: any raw materials you have bought during the period; and
  • deduct: what remains at the end of the period.

Some other points to note:

  • If you are a taxi or haulage driver HM Revenue & Customs (HMRC) say you should enter fuel costs in box 17 rather than elsewhere unless you are claiming based on the approved mileage allowances in which case the expense should be entered in box 20.
  • If your business provides services rather than goods, you would make an adjustment, similar to the one shown above regarding stock, to your work in progress to reflect any increase or decrease during the period
  • If you are a manufacturer of goods – you can deduct the costs of producing the goods you sell such as direct labour costs, machine hire, depreciation of fixed plant, small tools etc.
  • If you provide services you may have rechargeable expenses you can deduct from your gross profit
  • If you are using the cash basis then you do not need to calculate your closing stock position.

Generally disallowed expenses:

  • Fuel expenses for non-business use of vehicles
  • Depreciation (this is a percentage taken off the original cost each year based on wear from use or age) of fixed plant

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Construction industry - payments to subcontractors (boxes 18 and 33)

Generally allowed expenses:

  • All payments to subcontractors in the construction industry. If any payments have been made to uncertificated contractors use the amount before any tax deductions

Generally disallowed expenses:

  • Any non-business payments

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

Generally allowed expenses:

  • Wages and salaries including bonuses, commissions and overtime paid to your employees whether permanent, temporary or just casual labour
  • Employer's National Insurance contributions (NIC)
  • Pension contributions and insurance costs
  • Wages costs (including NIC) of employing your wife or husband 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
  • Staff entertaining costs - for example the staff Christmas party
  • Other staff related costs such as canteen expenses and recruitment agency fees
  • Costs of subcontract labour or a substitute/locum to stand in and do the work for you if necessary
  • Employee training costs and any fringe benefits

Generally disallowed expenses:

  • Your own wages, salary or drawings you take out of the business, your NIC or pension payments or other benefits.
  • Employees wages remaining unpaid nine months after your accounting date – these will be allowed once they are actually paid
  • Any excessive wages paid to family members – you can claim as allowable what is reasonable for the actual 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.

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

Generally allowed expenses:

  • Business element only of the motor expenses incurred in running a vehicle used in your business including insurance, servicing, repairs, road tax, fuel, hire and leasing charges, parking charges (but not parking fines), membership of the AA or RAC or similar . Instead of claiming the relevant business part of any expenses, you may instead claim a flat rate mileage allowance.
  • Hotel accommodation, air, rail or taxi fares, meals connected to your overnight stay whether included in your hotel charge or separate, 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.

Generally disallowed expenses:

The following are generally disallowed:

  • Any non-business motor expenses
  • Travel between your home and business
  • Cost of buying vehicles for your business (but you can claim capital allowances instead). If you are using the cash basis, though, you can claim deductions for the costs of vehicles except cats (where you can claim capital allowances instead)
  • Parking and other fines
  • Costs of most meals apart from those mentioned above

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

Generally allowed expenses:

If you have an office outside your home – you can include any rent, business rates, water rates, lighting, heating or power, property insurance and security costs, office cleaning, any repairs and maintenance to the office premises but not any improvements. If you lease your office premises and the lease is for less than 50 years you should be able to claim part of the premium you pay.

Use of home as office

You can also claim a proportion of your home related expenses such as heating, lighting, power, maintenance, cleaning, Council Tax, rent, mortgage interest.

Bear in mind the proportion of any expense claimed should be based on the total rooms in the house and the number you use for business. You should work out the number of rooms in your house – excluding bathrooms and cloakrooms or smaller kitchens and apportion the total expenses between rooms used for business and those used for private use.

For example say there are ten rooms in your house and you use one for business – you could claim a tenth of the total expenses for the year.

You should be aware though that there is no certainty HMRC will accept your figures and it may be simplest to work out the claim on this basis for the first year and when you send in your return, include an explanation of how you worked out the expense in the additional information box on page 6 of the supplementary pages.

If HMRC agree with this method of working out the deduction, you can use the same basis for later years or if not you may be able to come to some compromise figure between you. Instead of working out the proportions of various expenses you may claim a flat rate expense for the use of your home.

The fact that you are using your home for business could strictly mean that you might be liable for capital gains tax when you sell your home. Similarly, if you claim for part of your council tax or mortgage payments this might also have the same effect. However if the claim is fairly modest there should not be an issue with this.

Generally you can prevent the problem arising provided you do not use any one room in your house exclusively for business. For example if you work in your spare bedroom, which is also used as a guest bedroom this should normally be sufficient.

Again this is a grey area and the above information can only be given as guidance not hard and fast advice. If you do feel that there might be an issue you may want to discuss your own situation with HMRC.

Generally disallowed expenses:

  • The cost of buying your business premises
  • Any costs relating to that part of your business office not used for work.

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Repairs and maintenance of property and equipment (boxes 22 and 37)

Generally allowed expenses:

  • Any general renewals, repairs and maintenance to your office premises, fixtures and machinery and the cost of replacing small tools.

Generally disallowed expenses:

  • The costs of any improvements or major alterations to your office or business premises.
  • Any non-business part of the cost of repairs and maintenance to your premises or machinery.
  • Any general reserve you keep for repairs

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

Generally allowed expenses:

  • Typical office expenses such as telephone, fax, postage, stationery and printing, costs of trade or professional journals and subscriptions, courier services, general office expenses, costs of insurance not included elsewhere, together with any other similar recurring costs which arise in running the business.
  • 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.

Generally disallowed expenses:

  • Any non-business part of your general expenses
  • Any personal expenses
  • Payments to political parties
  • Most donations and fees made to clubs, charities or churches

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Advertising and business entertainment costs (boxes 24 and 39)

Generally allowed expenses:

  • Everyday costs of advertising and promoting your business goods or services – for example newspaper advertising, mail-shots, free samples, gifts up to £50 per year to a customer. The gift must prominently advertise or promote your business or services and excludes food, drink or tobacco
  • Staff entertaining unless this arises as part of business hospitality – if a member of staff takes a customer to lunch this is business entertaining and is disallowable

Generally disallowed expenses:

  • Entertaining and hospitality apart from the costs of entertaining staff
  • Gifts of more than £50 per year to customers (see generally allowable expenses) as well as all such gifts where there is not a prominent advert for your business or the gift is food, drink, tobacco or a voucher.

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

Generally allowed expenses:

  • Interest on a business overdraft or loan from a bank or other lender including any arrangement fees involved. If you claim to use the cash basis of accounting you can only claim up to £500 in total of interest and finance charges.

Generally disallowed expenses:

  • Any part of the repayment of the loan or overdraft which is a refund of the capital

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Bank, credit card and other financial charges (boxes 26 and 41)

Generally allowed expenses:

  • Business current account charges
  • Credit card charges and fees
  • Hire purchase interest (but not any capital repayments)
  • Leasing payments (in the case of cars this is limited in the case of a car with emissions over 130g/km)
  • Similar costs not included elsewhere

If you claim to use the cash basis of accounting you can only claim up to £500 in total of interest and finance charges for cash borrowings. However, 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 above £500.

Generally disallowed expenses:

  • Any part of the repayment which is a refund of the capital

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Irrecoverable debts written off (boxes 27 and 42)

Generally allowed expenses:

  • You no longer expect to be paid for goods you have sold or services provided which are included in your turnover but remain unpaid at the end of the accounting year and you decide to write off the amount involved
  • If you do recover the written off amount in a later year you will need to show the amount you receive in either box 16 or 75 (other income or profits)
  • Part of the bad debt given up under a voluntary arrangement

Generally disallowed expenses:

  • General bad debt reserve
  • Debts untaxed when they arose because they related to the sale of a fixed asset (for example equipment, machinery etc.)

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

Generally allowed expenses:

  • Fees charged by accountants, solicitors, surveyors, architects, stock takers and other similar costs. The accountants fees can include the costs of dealing with a HMRC enquiry provided there is no fraud or negligence involved
  • Debt recovery costs

Generally disallowed expenses

  • The legal expenses involved in buying premises or equipment as these are treated as part of their cost. If capital allowances can be claimed on the expenditure these legal costs are included in the total spend on the asset involved.
  • Costs of settling tax disputes
  • Costs and fines for breaking the law or any other illegal acts
  • Legal expenses on the formation of a company
  • Fee insurance protection (if it would cover your professional costs in the event of fraud or negligence)

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Depreciation and loss/(profit) on sale of assets (boxes 29 and 44)

Add together:

  • Depreciation
  • Loss on sales of assets

Then take off:

  • Profit on sales of assets

Put the resulting total in box 29

If the profit on sale is more than depreciation and any losses added together put the figure in box 29 in brackets, for example if depreciation is £1,000 and loss on sale of assets is nil but the profit on sale is £2,500 you will need to show (1,500) in box 29. This amount will then be taken off when you add up all your total expenses.

Whatever figure you put in box 29 you should put the same figure in box 44 unless some of the costs relate to finance leases. If this is the case you should get advice from HMRC as to what you should include.

The reason for doing this is that generally depreciation and losses on assets are not allowable for tax and any profit on sale of an asset is not taxable (unless you are liable to capital gain on the profit) so by putting the same figure in each box you simply cancel them out. Generally instead you would claim capital allowances on the asset so on sale you will get a balancing allowance or balancing charge.

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Other business expenses (boxes 30 and 45)

Generally allowed expenses:

  • Any expenses which you cannot include in boxes 17 – 29.
  • This might include:
    • Subscriptions to relevant trade and professional associations
    • Contributions to business link organisations, local enterprise agencies, training (including local) and enterprise councils, and similar
    • Pre-trading expenditure – allowable expenses that are treated as if incurred on the date you start trading
    • Research and development costs related to a trade but not a profession and it excludes any costs of acquiring rights to research but you may be able to claim capital allowances instead
    • Training expenses – where attendance at a training course is intended to give you new expertise, knowledge or skills, which you lack – 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 etc. which you already possess, the expenditure is normally regarded as revenue expenditure and will be deductible if it is training expenses

    • Flat rate scheme VAT payments – if you are a VAT registered business using the Flat Rate Scheme for VAT purposes

Generally disallowed expenses:

  • Non business element of any expenses in box 30
  • Cost of any ordinary clothes you buy even if you only use them for work
  • Cost of computer equipment and software if not allowable at box 23 (you may be able to claim capital allowances on some items)

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