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| Always keep your business receipts safe for at least five years in case HMRC requests proof. |
How Do You Claim Allowable Business Expenses on Your Tax Return?
When you are self-employed, one of the best ways to legally lower your tax bill is by claiming allowable business expenses. HMRC allows you to deduct the costs of running your business from your total income, meaning you only pay tax on your actual profits.
However, you must know what counts as an "allowable" expense and exactly where to input these figures on your Self-Assessment tax return. Here is a clear guide to help you claim correctly and keep more of your hard-earned money.
1. What Counts as an "Allowable" Expense?
HMRC rules state that an expense is only allowable if it is "wholly and exclusively" for the purposes of your business. If something has a dual purpose (used for both personal and business life), you can only claim for the business portion.
Common examples of allowable expenses include:
Office Costs: Stationery, phone bills, internet, and software subscriptions used for work.
Travel: Fuel, parking, train tickets, or bus fares for business trips (commuting to a regular workplace does not count).
Stock and Materials: Raw materials, direct goods for resale, or tools needed for your trade.
Business Premises: Rent, heating, lighting, and insurance for an office or workshop.
Legal and Financial: Accountancy fees, professional insurance, and bank charges on a business account.
2. Claiming to Work from Home
If you run your side hustle or freelance business from your living room or spare bedroom, you can claim a portion of your household utility bills. There are two ways to do this:
Option A: The Simplified Flat Rate (Easiest)
If you work 25 hours or more per month from home, you can claim a flat monthly rate without keeping track of individual utility bills:
25 to 50 hours/month: Claim £10 per month.
51 to 100 hours/month: Claim £18 per month.
101+ hours/month: Claim £26 per month.
Option B: The Actual Cost Method
Calculate the exact proportion of your heating, electricity, council tax, and internet based on the number of rooms you use for business and the amount of time you spend working there.
3. How to Enter Expenses on Your Tax Return
When you fill out your online Self-Assessment on the GOV.UK portal, you will reach the self-employment section. The system gives you two choices for entering your expenses depending on your income level.
If your turnover is under £85,000: You do not need to list every single expense type. You can simply add all your receipts together and enter one single total figure into the box labelled "Total allowable expenses".
If your turnover is over £85,000: You must break down your costs and type separate totals into individual categories (e.g., separate boxes for travel, office costs, and legal fees).
4. The Golden Rule: Keep Your Receipts
You do not need to send your receipts or bank statements to HMRC when you submit your online tax return. However, you must keep them safely stored for at least 5 years after the tax deadline.
HMRC has the right to check your books at any time. If you claim an expense but cannot produce a digital receipt, bank statement, or invoice to prove it, they can disallow the expense, recalculate your tax, and issue a financial penalty.
Once you have calculated your total expenses, follow our step-by-step guide on how to fill out your self-assessment tax return to submit your totals.