Running a small business means paying for all sorts of “necessary” costs from software to travel to marketing. The good news is many of these costs can reduce your taxable profit. The not-so-good news is that HMRC won’t allow everything.
This guide explains, in plain English, what you can usually claim, what you can’t and how to keep things HMRC-friendly.
Important: This is general UK information, not personal tax advice. HMRC rules can be nuanced, especially where there’s personal use.
The golden rule: business use only
If you’re self-employed, you can deduct expenses to work out your taxable profit as long as they’re allowable. Allowable expenses are costs related to business purchases. HMRC also makes clear that allowable expenses do not include money taken from the business for personal use.
Mixed-use costs (part business, part personal)
If you use something for both business and personal reasons (for example, a mobile phone), you can usually only claim the business portion and you should use a reasonable method to split it.
What you can claim (common categories)
HMRC’s guidance lists typical allowable expense categories for the self-employed, including:
Office, property and premises costs
- Office costs (e.g., stationery, phone bills)
- Costs of business premises (e.g., heating, lighting, business rates)
Travel costs
- Travel costs such as fuel, parking and public transport fares
Staff and subcontractors
- Staff costs (e.g., salaries or subcontractor costs)
Stock and materials
- Things you buy to sell on (e.g., stock or raw materials)
Financial costs
- Financial costs (e.g., insurance or bank charges)
Marketing and training
- Advertising/marketing (e.g., website costs)
- Training courses related to your business (e.g., refresher courses)
Working from home: two main approaches
HMRC says you may be able to claim a proportion of household costs (like heating, electricity, council tax, rent/mortgage interest and internet/telephone use) if you work from home, using a reasonable method (for example, rooms used or time spent).
Simplified “flat rate” option (self-employed)
If you work 25 hours or more per month from home, you can use a flat rate instead of complex calculations. HMRC’s published monthly flat rates are:
- 25 to 50 hours: £10/month
- 51 to 100 hours: £18/month
- 101+ hours: £26/month
HMRC notes the flat rate does not include telephone or internet, you can claim the business proportion separately by working out actual costs.
Capital allowances: when it’s not a normal “expense”
For some purchases (like equipment, machinery, and certain business vehicles), HMRC guidance points to capital allowances instead of treating the full cost as a day-to-day expense.
(If you want a deeper explanation on which assets qualify and how claims work, HMRC’s capital allowances guidance is the official starting point.)
What you can’t claim (common traps)
1) Personal spending / drawings
HMRC explicitly states allowable expenses do not include money taken from the business for personal use.
2) “Everyday” clothing (even if you only wear it for work)
HMRC’s manual guidance is clear: you should disallow ordinary clothing that could be part of an everyday wardrobe even if a professional body expects a certain standard of dress. Protective clothing and uniforms are treated differently.
3) Business entertainment and many gifts
HMRC’s manual says that, with certain exceptions, expenditure on business entertainment or gifts is not allowable as a deduction against profits, even if it’s a genuine business expense.
4) Travel with a “dual purpose” (business + holiday)
If travel has dual purpose (for example, mixing a conference with a holiday), HMRC’s manual states the costs can be disallowable because no part is wholly and exclusively for the trade.
5) Fines and penalties (often disallowed, facts matter)
HMRC notes the key test is whether the expense is wholly and exclusively for the trade. Where a penalty is intended as punishment, it will not be allowable; where it’s restitution for damages caused by normal trading operations, it may be allowable.
Record keeping: keep it simple and defendable
A practical rule: if you’d struggle to explain why it was for the business, treat it as a red flag.
For anything with personal overlap (phone, car, home working), document:
- what the cost was,
- how you calculated the business proportion,
- and keep evidence (invoices/receipts and notes).
Quick FAQs
Can I claim expenses if I use the £1,000 trading allowance?
HMRC states you cannot claim expenses if you use the £1,000 tax-free trading allowance.
I run a limited company, does this apply?
HMRC notes that if you run a limited company, you’re not “self-employed” in that sense and company deductions are handled differently for Corporation Tax.
Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/succession-planning-securing-the-future-of-your-business/
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