What business expenses are allowable?

Updated on 11 December 2018

You may wish to claim business expenses. In this section, we discuss which business expenses are allowable. When we say business expenses are ‘allowable’ this means that the tax rules allow the particular expense to be deducted from trading income when calculating the business’ profits on which it will pay income tax and National Insurance.

What business expenses are allowable?

All revenue (trading) expenses must have been incurred “wholly and exclusively” for the purposes of 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.

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What is the difference between a revenue and 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 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. Your accounts include all revenue expenses relating to the period covered by the accounts (the accounting period). Capital expenditure may qualify for capital allowances and some capital expenditure may effectively be treated the same as revenue expenditure if you are using the cash basis.

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Are all revenue expenses allowable for tax purposes?

Unfortunately not. Some expenses are not 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 will ever be allowable.

To exclude the expenses that are not allowable you might need to make some adjustments to the profit shown in your accounts. See ‘how do I work out my taxable profits’ for more information.

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How do I know what expenses are allowable?

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

We provide some additional information on the page ‘further comments on business expenses’.

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How do I tell HMRC about my expenses?

You will generally need to tell HMRC about your allowable 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 2017/18) and provided certain other circumstances do not apply. Have a look at the notes relating to these pages on the GOV.UK website 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 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 2017/18), but because of your circumstances you still have to complete the full self-employment pages, you need only enter the total figure of your 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 2017/18) you will need to show your actual expenses in the self-employment (full) pages.

Looking at SEF2 of the self employed pages for 2017/18 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.

There is useful commentary on which expenses are allowable and which are disallowable on pages 5 and 6 of the self assessment self-employed pages notes for 2017/18.

Some further information is available on the page ‘further comments on business expenses’.

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I work from home. What expenses can I claim?

You can claim a proportion of your household expenses such as heat and light, council tax, water rates, rent or mortgage interest for example. So if your house has four rooms, excluding kitchen and bathroom, and you use one room partly for business purposes, you could claim up to one quarter of those costs.

There are several examples of how home running costs may be apportioned on a reasonable basis in HMRC's Business Income Manual.

If you own the house you are working from, you do need to be a bit careful. 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. In the normal situation, rooms are not used exclusively for business purposes so this is not a problem. It does mean, though, that you should be careful to restrict the claims for household expenses you make.

There is more information on the page ‘further comments on business expenses’.

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Is there an easier way to deal with home expenses?

Yes, there is. You can use simplified expenses which allow you to claim household expenses (and car expenses) using flat rate allowances to save you work. You can only claim flat rate expenses for working from home if you work there for at least 25 hours per month.

Hours of business use per month 2018/19 flat rate per month
25 to 50 £10*
51 to 100 £18*
101 and more £26*

* This is instead of actual expenses, for example business proportion of utilities, repairs, mortgage or rent. 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.

If you live on your business premises, for example your business is running Bed and Breakfast accommodation, you can use a flat rate adjustment to calculate your personal expenditure (for example, utility costs and food).  This flat rate allowance is then deducted from the businesses’ 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 rent, mortgage and council tax; 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

However, you do not need to opt 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.

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What about motor expenses?

Similarly to home expenses, you can either claim a proportion of your actual motoring expenses or you can charge flat rate expenses as follows:

Vehicle 2018/19 Flat rate per mile with simplified expenses What you can claim if you don't or can't use simplified expenses
Cars and goods vehicles
first 10,000 miles
45p Capital allowances and running costs (for cars) or
purchase costs (goods vehicles)
Cars and goods vehicles
after 10,000 miles
25p Capital allowances and running costs (for cars) or
purchase costs (goods vehicles)
Motorcycles 24p Full purchase cost and running costs
Bicycles 20p Full purchase cost and running costs

You will need to keep a record of the number of miles you travelled 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) in the usual way.

You do not have to use flat rates for all your vehicles. However, once you have chosen to use them for vehicle you must stick with this 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.

There is more information on the page ‘further comments on business expenses’.

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.

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