When you're self-employed, you’re responsible for calculating your own profit — which means tracking what you earn and what you spend to run your business. HMRC allows you to deduct allowable business expenses from your income to arrive at your taxable profit. This helps ensure you're only taxed on what you actually earn after costs.

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 What Counts as a Business Expense?

Business expenses must be wholly and exclusively for business purposes. Personal expenses aren't allowed unless you can separate the business portion clearly.

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Common allowable expenses include:

• Office & admin costs: Stationery, postage, phone bills, printing

• Travel expenses: Train/bus fares, fuel (business trips only), hotel stays

• Premises costs: Rent, business rates, electricity (if you work from business premises)

• Equipment & supplies: Tools, uniforms, machinery, laptops, software subscriptions

• Professional services: Accountants, legal fees, marketing consultants

• Insurance & bank charges: Business insurance, overdraft fees, bank charges

• Training & development: Courses related to maintain your business skills

• Advertising & branding Website hosting, flyers, social media ads

• Subcontractor payments CIS payments if you're in construction

 

Invoices & Receipts: Your Expense Evidence

For each expense you claim, you should keep:

• Supplier invoices

• Receipts or payment confirmations

• Bank statements showing the transaction

• CIS statements (if applicable)

These act as your audit trail, proving the expense was genuine and business-related. HMRC may request these documents up to 6 years after the return deadline.

 

How Expenses Reduce Your Taxable Profit

Here’s a quick illustration:

• Income: £30,000

• Business expenses: £8,000

• Taxable profit = £22,000

This means you only pay tax on the £22,000, not the full £30,000 — which could save you hundreds or even thousands depending on your circumstances.

 

Simplified vs Traditional Expense Claims

HMRC gives you two routes:

1. Simplified Expenses

Flat-rate claims for things like home office and vehicle use. Easier to manage but less accurate.

2. Actual Costs (Traditional Method)

You claim the real amounts based on receipts and invoices. More work, but often results in larger deductions, depending on your circumstances.

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If you want to discuss in more details about your particular circumstances, don't hesitate and get in touch for a free consultation. 

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