Introduction
If you’re self-employed in the UK, understanding what expenses you can claim is essential to ensure you’re not overpaying tax. HMRC allows you to deduct expenses incurred “wholly and exclusively” for the purposes of your trade — but there are many nuances, especially when personal use is involved. This guide sets out the main rules and examples to help you navigate allowable expenses confidently.
Revenue vs. Capital Expenditure
Revenue expenses are day-to-day running costs (e.g. office supplies, utilities).
Capital expenses are long-term investments (e.g. machinery, vehicles).
If you’re using the cash basis of accounting, you can often treat capital items similarly to revenue ones however the following are disallowed –
- Education and training for new skills.
- The acquisition of an asset which is not a depreciating asset.
- The acquisition of a car.
- The acquisition of land (which includes buildings).
A depreciating asset is one with a useful life of less than 20 years or one which within 20 years has a value of 10% or less of its original value at the time of expenditure.
Interest on Business Loans
Interest on loans taken wholly and exclusively for business purposes—such as buying stock, paying wages, or acquiring assets—is allowable for tax. This includes overdraft interest, provided the account is used solely for business purposes.
Incidental finance costs, such as loan arrangement fees, are also deductible.
Assets Acquired on Hire Purchase
Assets acquired through hire purchase (HP) are treated as if owned from the start of the agreement for tax purposes.
For non-car assets, both the capital and interest elements of HP payments are deductible, subject to business use.
For cars, only the interest is deductible; the capital cost must be claimed via capital allowances.
Leasing Costs
Costs incurred in leasing or hiring assets for business use are generally allowable for tax purposes.
In a short-term lease (operating lease), such as hiring equipment for a few months, rental payments are deductible when paid.
In a long-term lease (finance lease), tax treatment is like HP, though ownership does not transfer. Under the cash basis, the total lease payments made during the accounting period are deductible.
Legal and Professional Fees
Legal and professional fees are generally allowable as business expenses where they are incurred wholly and exclusively for the purposes of the trade.
However, legal fees related to the acquisition or sale of land or buildings are not allowable, except where they relate to the renewal of a short lease (defined as a lease of 50 years or less).
Rent and Lease Premiums
Rental payments for business premises are allowable expenses and can be deducted when paid.
However, any initial lease premium paid for the grant of a lease is treated as a capital payment related to land and is therefore not deductible under the cash basis rules.
Employee Costs
Salaries, wages, employer’s National Insurance contributions, and pension contributions are allowable business expenses, provided they are incurred wholly and exclusively for the trade.
A trader may employ family members, such as a spouse or civil partner. Wages paid are deductible if:
- The individual genuinely works in the business; and
- The pay is reasonable for the work performed.
Wages paid to children are only allowable if:
- The work is appropriate for the child’s age and capability; and
- The payment is a genuine wage, not simply a means to use the child’s personal allowance.
Travel and Subsistence
Travel costs between home and a regular place of work are not deductible, even if a trader has multiple regular workplaces.
However, travel for business purposes (e.g. to visit clients or attend occasional work locations) is allowable.
Subsistence costs (e.g. food and drink) are generally not deductible, unless:
- The trader is travelling for business, and
- The travel is either occasional, or the trade is itinerant in nature.
Fines and Penalties
Fines and penalties are not deductible, even if incurred during business activities. This includes parking and speeding fines.
Entertaining and Gifts
Client entertainment costs are not allowable for tax purposes, regardless of the nature of the hospitality.
However, staff entertainment expenses (e.g. team events) are allowable.
Business gifts to clients are only deductible if:
- The total cost per recipient is £50 or less per tax year;
- The gift prominently displays the business name or logo; and
- The gift does not include food, drink, or tobacco.
Training Costs
Training to acquire new skills or qualifications—such as becoming an accountant—is treated as a capital expense and is not deductible, as it provides an enduring benefit and enables the individual to begin trading.
However, ongoing training to update or maintain existing skills is allowable as a business expense.
Staff training costs are always deductible, whether for acquiring new expertise or maintaining current skills.
Clothing
Only uniforms and protective clothing (e.g., hard hats, overalls, chefs’ aprons) qualify as expenses wholly and exclusively for the trade, per Mallalieu v Drummond. Other clothing items are disallowed due to personal benefit.
Theft
Losses from theft by employees (not by sole traders or partners) are deductible in computing taxable trade profits.
Donations to charities
Charitable donations are allowable expenses if made wholly and exclusively for trade purposes, for example, sponsorship of an event as means of advertising, unless Gift Aid has been claimed.
Other allowable expenses
- Website setup and maintenance costs
- Trade subscriptions
- Research and development expenses
- Business rates or business portion of council tax
- Patent registration fees
- Advertising expenses
Drawings
Drawings are monies taken from the business profits by the owner/proprietor to meet their own private expenditure. These drawings are not allowable as a trading expense.
