Allowable Expenses

Quick Summary of Allowable Expenses

Expenses incurred by a person whilst carrying out duties at work, which are ‘approved’ by the tax authorities and can be offset against income to reduce income tax liability.

Allowable expenses are non-taxable business costs that are necessary for the operation of the business.

Allowable expenses are not included in a company’s taxable profits. As a result, you do not pay tax on these expenses. A company, for example, has a £15,000 annual revenue. Allowable expenses total £2,000 for them. They only pay tax on the balance of £13,000.

There are a few exceptions to the rule that most small businesses can claim allowable expenses. If you use the £1,000 tax-free ‘trading allowance,’ you cannot claim allowable expenses, and limited companies are subject to different rules.

What can I claim as allowable expenses?

Only certain costs can be claimed as allowable expenses, including:

• Office costs such as stationary, phone bills, or other items that you use for less than two years
• Costs of business premises such as utility bills and rent (costs associated with buying property aren’t considered allowable expenses)
• Travel costs such as fuel, parking or train tickets (travel to and from work isn’t an allowable expense)
• Staff costs such as wages, salaries, bonuses and pensions
• Clothing costs such as uniforms or protective clothing (everyday clothing that you wear to work isn’t an allowable expense)
• Legal and financial costs such as credit card charges, overdraft fees, insurance policies or hiring the services of accountants, bookkeepers, solicitors or surveyors (you can’t claim legal fines)
• Advertising and marketing costs such as printed adverts and the cost of building a website
• Items that you only buy to sell on such as raw materials or merchandise

Personal expenses vs. business expenses

When claiming allowable expenses, it is critical to distinguish between business costs and personal expenses, as private purchases cannot be claimed as allowable expenses.

If you use company funds to pay for a personal expense, the cost should not be included when calculating your annual allowable expenses.

It’s common for small businesses and freelancers to have expenses that cover both business and personal expenses. Only business costs can be claimed as allowable expenses in these circumstances.

For example, you drive to client meetings, but you also use it to get around outside of work. You spend £200 per month on gasoline. You calculate that you use 25% of your gasoline during work-related trips (not including journeys between home and work). As a result, you can only claim £50 per month as an allowable fuel expense.

How to claim allowable expenses

Allowable expenses can be claimed on your annual Self Assessment tax return. When submitting your tax return, you are not required to submit proof of your expenses; however, HMRC may request proof of your costs. As a result, it’s critical to keep detailed, accurate records of your expenses throughout the tax year.

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