Allowable expenses for your business

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.