Allowable expenses

Allowable expenses

If you’re self-employed, your business will have running costs. You can deduct some of these costs from your income to work out your taxable profit provided they are allowable expenses.

This will reduce the amount of tax you need to pay on the profits of your business.

Which expenses are allowable expenses?

Here are some examples of costs which are classed as allowable expenses for tax purposes.

Type Details
Cost of sales This may include goods bought for resale, or products used to provide a service.
Staff costs The costs of employing staff, including their wages and salaries, pensions and other employment related costs.
Premises costs The costs of using a building from which a business in run. This could include rent, rates, insurance, heat and light.
Motor and travel The costs of running motor vehicles and the costs incurred whilst working away from an office.
Administration These costs could include telephone, internet, stationery, printing, IT expenses and specific business insurance.
Professional This could include the services of an accountant and possibly legal advice.
Advertising The costs of promoting your business.

Which expenses are not allowable?

Below are some common examples of expenditure which are not allowable expenses for tax purposes.

Type Details
Capital expenditure and depreciation Capital expenditure is the purchase or improvement of fixed assets. Fixed assets are large items which are not bought to resell. For example, motor vehicles, buildings, office and computer equipment.  However, capital allowances may be available instead.
Depreciation is an accounting term (a provision), and it is a method of writing off the cost of capital expenditure over a period of time.
Entertaining Client entertaining is not allowable.
Staff entertaining is allowable if incurred wholly and exclusively for business purposes, for example team building.
Donations Political donations and charitable donations to national charities are not allowable.
Always keep a note of charitable donations as may be allowable elsewhere, as a gift aid payment on the individual’s self assessment tax return.
Penalties and fines These are not allowable as they relate to breaking the law.
Legal fees Legal fees relating to capital items or breaking the law are not allowable.
Private expenditure Any private usage is not allowed,  this includes any amounts taken out by the owner(s).
If an expense which is used partly for business and partly for private purposes, the business part is still allowable.

Remember to keep records of all your business expenses as proof that they were incurred.

Help with allowable expenses

Contact me if you need any help with this or any other aspect of your bookkeeping, accounts or Self Assessment Tax.

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