Further comments on business expenses

Updated on 27 January 2020

Self-employment

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

There is information in the allowable business expenses: cash basis and traditional accounting section of HMRC’s Helpsheet HS222; this page covers some areas which are not covered in depth in the Helpsheet. 

The box numbers shown here refer to the boxes on the full version of the self-employment pages of the paper return (SA103F) for 2018/19.

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.

If you use the accruals basis when preparing your accounts, 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 period; and
  • add: any raw materials you have bought during the period; and
  • deduct: what remains at the end of the period.

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

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 expenses 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 profit

Generally disallowed expenses:

  • Fuel expenses for non-business use of vehicles

  • Depreciation (this is a proportion taken off the original cost each year based on wear from use or age) of fixed plant or assets such as capital equipment

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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 drawings from the business (remember that if you pay yourself a ‘salary/wages’ from your business this is still drawings as you cannot be an employee of your own self-employed unincorporated business)
  • 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 a vehicle breakdown service such as the ATT 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
  • The cost of vehicles other than cars if you are using the cash basis

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 (if you are using the accruals basis (ou can claim capital allowances instead)

  • Cost of buying cars if you are using the cash basis, (you can claim capital allowances instead)

  • Parking fines and other fines
  • Costs of most meals apart from those mentioned above

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

Generally allowed expenses:

  • Typical office expenses such as 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, 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 if you are on the accruals basis
  • The cost of office equipment and computer software if you are using the cash basis

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 and gifts up to £50 per year to a customer, however 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 above -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 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 (there are exceptions to this (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).

Generally disallowed expenses:

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

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Irrecoverable debts written off (boxes 27 and 42)

This will apply when using the accruals basis of accounting only.

Generally allowed expenses:

  • You no longer expect to be paid for goods you have sold or services provided which are included in your turnover (sales) 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 fees (boxes 28 and 43)

Generally allowed expenses:

  • Fees charged by accountants, solicitors, surveyors, architects, stock takers and other similar costs (but see below). The accountant's fees can include the costs of dealing with an 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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Other business expenses (boxes 30 and 45)

Generally allowed expenses:

  • Any expenses which you cannot include in boxes 17 – 29.
  • This might include:
    • 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
    • Training expenses, however where attendance at a training course is intended to give you new expertise, knowledge or skills, which you lack 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

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 if you are using the accruals basis)

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Where can I find out more information?

Our guide to self-employment 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 a case study showing how to prepare accounts and what to include on your tax return.

Self-employment guide

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

There is information on taking on staff on our specialist website for employers (please note that although this website is aimed at a specific group of employers – those that take on personal assistants to provide them with care and support – the guidance on the website is relevant to employers much more widely).

On this website you will find more information about:

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