Allowable Expenses and Deductions

For those who incur personal costs as a result of their job, it can often seem that the rules regarding what can be counted as an expense are impenetrably complex. This is particularly true for those who are self-employed and may work from a home office or similar. In these cases, the line between personal and professional expenses can become blurred. It pays, however, to be fully aware of the range of allowable expenses and deductions available to you. After all, they are designed to make the financial lives of those in employment easier.

If you're self-employed and unsure what expenses you can legitimately claim or what income must be declared, you may find it helpful to use our free Self Assessment Helper.

Basic Definitions

The rules surrounding allowable expenses are ambiguous at best. This is in great part why they are apparently difficult to understand. There is, however, a general rule that can be applied to such circumstances. In most instances, expenditure can be counted as allowable expenses if it was required solely in order to acquire income, or if it was not spent for personal reasons, or if it was not spent on something which the purchaser intends to keep for any length of time. For example, the purchase of a computer which would also be used for personal purposes would not be counted as an allowable expense.

It is also important to note that a number of expenses which one would imagine would be allowable are not, but may be covered under capital allowances. For example, if you are setting up a business, the initial costs of machinery and buildings are unlikely to be covered as allowable expenses. However, you will almost certainly be granted relief under the capital allowances scheme for these expenditures.

Self Assessment Helper

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Self Employment

One of the areas in which the rules regarding allowable expenses can become most complex relates to the use of the home as a work-place. Many self-employed individuals work from home, and it is often difficult to decide what personal expenses are and what can be counted as a business expense. Essentially, you are able to claim the proportion of your expenditure that corresponds to the amount of time spent using that facility for employment purposes. For example, if you have a room in your house that is devoted entirely to your job, you can claim the proportion of the rent that relates to that room as an allowable expense. Similarly, you can claim the same corresponding proportion of your phone bill, and so on.

If you have any employees, the rules may appear to become even more complex. Essentially, any National Insurance Contributions (NICs) are counted as allowable expenses as long as they relate to employees. NICs are not permissible as allowable expenses if you are paying them on your own behalf, and Income Tax payments are not permissible regardless of on whose behalf they are being paid.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Allowable Expenses and Debt

Finally, it is worth looking at the rules surrounding allowable expenses and debt. In basic terms, any interest paid on debts for business purposes is permissible as an allowable expense, unless it is a bad or questionable debt. Similarly, interest payments on business overdrafts may be counted as allowable expenses, but interest on loans to business partners may not.

As with all such considerations, it is always advisable to seek the advice of a Reputable Chartered Accountant before taking any action in this field, particularly if you are self-employed.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Self Assessment Helper lets you confused by self assessment? Tell us about your income and circumstances and get a clear guide to what you need to declare, what you can claim, and the key deadlines. Try it now →