Complete Guide to Self-Employed Allowable Expenses UK 2025

As a self-employed person in the UK, understanding which business expenses you can legally claim against your tax bill is crucial. Claiming legitimate expenses reduces your taxable profit, which means you pay less Income Tax and National Insurance. However, getting this wrong can trigger HMRC investigations and penalties ranging from £300 to £10,000+. This comprehensive guide explains exactly what you can claim, how to calculate mixed-use expenses, and the records you need to keep to stay compliant.

How Allowable Business Expenses Work

The "Wholly and Exclusively" Rule

HMRC allows you to deduct expenses from your business income if they are incurred "wholly and exclusively" for business purposes. This is the fundamental test. If something has any personal use element, you can only claim the business proportion. For example, if you use your mobile phone 70% for business and 30% personally, you can claim 70% of the monthly cost. You cannot claim 100%.

The key principle is that the expense must be necessary for running your business and would not have been incurred if you weren't self-employed. Your personal living costs, commuting to your normal place of work, and most clothing cannot be claimed because you'd have these expenses anyway, even without a business.

Revenue vs Capital Expenses

Business expenses fall into two categories. Revenue expenses are day-to-day running costs that you claim in full against the year's profit - things like stationery, phone bills, travel, and advertising. These are deducted from your income in your Self Assessment tax return.

Capital expenses are significant purchases of assets that last multiple years, like vehicles, computers over £500, or machinery. These are typically claimed through Capital Allowances rather than as direct expenses. You might claim Annual Investment Allowance for 100% of the cost in year one, or spread the relief over several years through writing down allowances. The rules differ from revenue expenses and require professional advice for expensive items.

How Expenses Reduce Your Tax Bill

Allowable expenses reduce your taxable profit, which is the amount on which you pay Income Tax and National Insurance. Here's a simple example showing the powerful impact of claiming all legitimate expenses:

What Expenses Can You Claim? Complete Categories

Here are all the major expense categories self-employed people can claim. Hover over each card to see specific examples. Remember, mixed-use items require proportion calculations based on actual business use.

Working from Home Expenses: Two Methods Explained

If you work from home, you can claim a portion of your home running costs. HMRC offers two methods, and you should choose whichever gives you the larger deduction.

Vehicle & Travel Expenses: Mileage vs Actual Costs

Business travel is one of the most valuable expense categories, but also one of the most scrutinized by HMRC. Keep detailed records to support all claims.

What You CANNOT Claim (Avoid These Costly Mistakes)

Understanding what you cannot claim is just as important as knowing what you can. Claiming non-allowable expenses triggers HMRC investigations and penalties. These are the most common mistakes we see.

Mixed Use Expenses: Calculating Business Proportion

Many expenses have both business and personal use. You must calculate the business proportion accurately and keep evidence supporting your calculation. This is where most people get caught by HMRC investigations.

Common Mixed Use Items

The £1,000 Trading Allowance: When to Use It

The trading allowance can seem attractive for simplicity, but most self-employed people with genuine business expenses are better off claiming actual expenses. Here's when each option makes sense.

What Is the Trading Allowance?

The trading allowance lets you earn up to £1,000 per year from self-employment without telling HMRC or paying tax on it. If you earn over £1,000, you can choose to either claim actual expenses OR deduct the £1,000 trading allowance instead. You cannot do both. It's designed for people with very occasional self-employed income and minimal expenses.

Record Keeping Requirements: What HMRC Expects

Proper record-keeping is not optional. HMRC can investigate your tax returns going back 6 years (20 years for serious errors), and you must be able to provide evidence for every expense claimed. Digital records are now preferred with Making Tax Digital coming for all self-employed individuals.

What Records to Keep

How Long to Keep Records

You must keep all business records for at least 6 years from the end of the tax year they relate to. For example, records for 2024/25 tax year (ending 5 April 2025) must be kept until at least 5 April 2031. If HMRC suspects deliberate errors, they can investigate 20 years back, so keeping records longer provides extra protection.

Digital records are acceptable and actually preferred with Making Tax Digital. Take photos of paper receipts and store them in the cloud. Use accounting software to track income and expenses digitally. This makes it much easier when your accountant needs information for your tax return, and you won't lose critical receipts.

How LOYALS Helps Maximize Your Legitimate Expense Claims

We've helped 500+ London self-employed clients claim an average of £3,200 more in legitimate expenses they would have missed on their own, while maintaining 100% HMRC compliance with zero penalties. Here's how we help you claim everything you're entitled to.