Self-assessment: our at-a-glance guide to allowable expenses

Self-assessment is one of the necessary requirements of being a business owner. At Expend, we’re here to make business finance easier, so here’s our at-a-glance guide to the key allowable and disallowable expenses under self-assessment tax rules. 

Your approach to self-assessment will depend on whether you’re a “glass half full” or “glass half empty” person. It’s tempting to believe that the tax authorities are here to collect as much as they can. However, there are a surprising number of allowances available under self-assessment, and it’s important to understand these so that you can optimise your tax position.

What’s meant by 'Allowable and Disallowable' expenses?

Allowable expenses are the permitted costs of running your business and these can be subtracted from your taxable income to lower your income tax. 

HRMC produce a clear guide to allowable expenses but it’s also important to understand what is disallowable.

HMRC say that an expense needs to be “wholly and exclusively” incurred for business purposes before it qualifies as an allowable expense. If it does not meet this test, then the cost is disallowable and can’t be used to soften your taxes due.

Here’s a round-up of allowable and disallowable expenses, by category:

Cost of goods bought for resale or goods used 💰

This category includes your cost of sales, supplies and materials, shipping freight and delivery, and equipment rental. 

Allowable expenses include your raw materials and direct production costs. If you’re a haulage, minicab or taxi driver, it can also include your cost of business fuel. Disallowable costs include the cost of materials or goods purchased for personal use. 

Wages, salaries and other staff costs 👨‍💻

Included in this are your costs of labour and payroll expenses. Allowable expenses include your staff costs such as salaries, bonuses, pensions, benefits, as well as agency fees and employer National Insurance Contributions (NICs). 

Disallowable expenses include your own salary and dividends, pension and NICs. 

Car, van and travel expenses 🚘 

This category has a more generous provision: none of the expenses associated with car, van and travel are disallowable.

Allowable expenses include expenses for car/van, such as insurance, servicing, repairs, fuel and business parking.

Also included are roadside recovery membership (AA / RAC), public transport fares, and hotel/ subsistence meal costs on overnight business trips.

Remember that the Expend mobile app is a great way to capture business expenses and integrate them into your digital accounting software, such as Xero or Quickbooks. 

Repairs and renewals of property and equipment 🛠

Allowable expenses in this category include the costs to maintain and repair your business premises and equipment, including the replacement of some equipment and small tools.

Disallowable expenses include any costs linked with private or non-business elements of these expenses, including costs for improving or altering premises or equipment.

Phone, fax, stationery and other office costs 📞

This element of costs includes distribution costs, as well as business subscriptions. Allowable expenses include the costs of operating telephone and fax equipment, business printing, stationery and postage, costs of software and small office equipment. 

Private or non-business use related to these expenses are disallowable.

Advertising and business entertainment costs 📺

Allowable expenses in the advertising and promotional category include newspaper and directory advertising, direct mail and website expenses. Disallowable expenses include entertaining your suppliers or clients, as well as hospitality. 

Interest on bank and other loans 🏦

Allowable expenses include any interest paid on bank and business loans and business finance, up to £500 per year. There are no disallowable expenses for this category. 

Bank, card and other financial charges 💳

This category includes bank charges and the costs of equipment rental and finance costs, up to £500 per year for each element of the category. Allowable expenses include costs for bank, overdraft, and card facilities, and interest on hire purchase, leasing payments and finance payments. Private or non-business portions of these expenses are disallowable. 

Irrecoverable debts written off ❌

Bad debts can attract tax relief. Unpaid turnover that is written off is an allowable expense. Disallowable expenses include debts that are not included in turnover, and debts linked to fixed assets. 

Accountancy, legal and other professional fees 🗃

Professional, legal and insurance expenses attract tax relief, so allowable expenses include fees for accountants, solicitors, architects, surveyors and other professionals. Premiums for professional indemnity insurance are also allowable. There are no disallowable expenses for this category.

Depreciation and loss/profit on sale of assets 💻

Depreciation and amortisation expenses do not qualify for tax relief, so there are no allowable expenses for this category. This means that depreciation of cars and equipment, as well as losses on asset sales, are disallowable expenses. 

Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.