Allowable expenses are costs that are essential to running your business and can be deducted from your taxable income to reduce how much income tax you pay.
For example, if your business made £50k over the current tax year, and you spent £8,000 on allowable expenses, you wouldn’t have to pay tax on the entire £50k. You’d only pay tax on £42k, known as your taxable profit.
Most small businesses can claim allowable expenses, but there are a few scenarios where it might not apply. For example, you can’t claim allowable expenses if you use the £1,000 tax-free trading allowance.
If an expense is not used entirely for business purposes, then it is a disallowable expense. You can’t claim a disallowable expense as a deduction to reduce your taxable income.
For more information on allowable expenses, check the GOV.UK website.
What counts as an allowable expense?
Only certain costs can be claimed as allowable expenses, such as:
Office equipment, for example stationary and phone bills
Business property, such as utility bills, insurance and rent. Costs on buying property aren’t considered allowable expenses
Travel, for example, fuel, parking, public transport tickets, vehicle insurance. But this doesn’t include travel to and from work
Staff costs, for example, wages, training, bonuses and pensions
Clothing, such as uniform or protective clothing
Legal and financial costs, for example, bank charges, interest on business loans and hiring financial specialists such as solicitors.
Marketing, such as printed adverts and website fees
Items that you only buy to sell, such as raw materials or merchandise
How to claim allowable expenses
You can claim allowable expenses through your annual Self Assessment tax return.
Although you don’t need to submit proof of your expenses to HMRC to claim allowable expenses, HMRC may ask about these, so it’s important to keep accurate records of your expenses throughout the year.