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Expenses-What is allowable?

Wholly and exclusively 

As a general rule of thumb, HMRC’s definition of an allowable self-employed business expense is any item that is purchased wholly and exclusively for business purposes.

For example, if you are a self-employed window cleaner and you pop into Tesco’s to pick up some sponges that you use in your business for cleaning windows, these are “allowable.”

However, if you take these sponges out of the business and use them for washing the dishes at home, they now have a “duality of purpose” and may not be allowable!

Any item, regardless of what it is, is allowable as long as it passes the HMRC wholly and exclusively test.

Self-employed or Employed?

Whether an item is an allowable expense or not depends on whether you are a self-employed (sole trader/CIS subcontractor) or employed (PAYE/Umbrella/Agency), as there are significant differences between the two.

We have put together this brief guide to cover the basics of the most common categories and highlight the differences between self-employed and employed.  

High-value long life span items

If you’re self-employed, you can claim capital allowances for high-value long life span items providing they are purchased for business use, such as a van.

Please see our guide on capital allowances for more information.

If you are employed, you would not expect to be purchasing such items and would therefore not seek to claim capital allowances.

Vehicle Costs

Self-employed individuals can claim tax relief on their business vehicle’s “Actual” running costs, such as fuel, road tax, and insurance when travelling to temporary workplaces.

If you are using the same vehicle for both work and pleasure, you will need to make sure you only claim the costs incurred for work and not pleasure!

However, the most common method for accounting for vehicle costs is the flat-rate mileage allowance.

Employed workers would not claim “Actual” vehicle costs.

They would instead claim based on the flat-rate mileage allowance, assuming the journey was to a temporary workplace and not the everyday commute to and from your place of work.

Flat rate mileage allowance

The flat-rate mileage allowance can be claimed instead of the actual cost method vehicle method, providing you keep a mileage log. 

As a Self-Employed worker, this means that you can claim expenses on the miles you have driven to work. 

Under the flat-rate allowance, cars and goods vehicles can claim a flat rate of 45p per mile for the first 10,000 miles and a further 25p per mile after that.

However, the flat-rate mileage allowance includes the entire vehicle cost, such as the purchase of the vehicle, fuel, road tax and insurance.

Motorcycles can claim 24p per mile under simplified expenses.

You must keep an accurate mileage log to substantiate and differentiate between business and personal travel, especially if you are using the same car for both business and pleasure. 

The easiest way to keep an HMRC mileage log is with QuickBooks mileage auto-tracking.

Here is more guidance on the flat rate mileage allowance. 

As a PAYE worker, you are only able to claim mileage costs when travelling to a temporary place of work (see above)

Tools and equipment - Purchases, repairs, and renewals.

If you are Self-Employed, you can claim expenses for any tools or equipment you have purchased, renewed or repaired for your business.

If you are employed, and your employer has not provided you with the same or similar item, then you can claim for the purchase or replacement of that item as an expense, as long as you need it to do the job!

Travel and subsistence expenses (Food, drink & overnight accommodation)

As a Self-Employed & Employer individual, you can claim back travel and subsistence expenses during your time at a temporary workplace.

A workplace is considered temporary if your contract is below 24 months.

If your contract length is uncertain, the workplace will be classed as a temporary workplace until you have been there for 24 months. It would then be considered permanent.

As an Employed worker with one permanent place of work, you cannot claim expenses on travel and subsistence.

However, suppose you are required to work somewhere else temporarily (at another construction site or office, for example). In that case, you may be able to claim travel and subsistence expenses during your time there.

The rules here are ever-changing and Highly specific to your individual circumstances.

Therefore we always recommend seeking professional advice before submitting a claim for us first in these cases, as the majority of such claims are often not allowable.

Such as these…

Clothing, Unifom and PPE

If you are self-employed and you don’t have to wear a specific uniform on-site, for example, you wear your jeans and t-shirt then. 

Unfortunately, you can’t claim this is a business expense, as it has an intrinsic duality of purpose.

HMRC will always argue that just as we have to eat in order to live, we wear clothes for “warmth and decency” as well as for the requirements of our profession, and this is an argument they always win! 

Uniforms and protective clothing are allowable, but ordinary civilian clothing is not.

If, however, you are asked to wear a specific uniform by your contractor that they haven’t provided, then you may be able to claim for this. 

As an employed worker, if you are provided with a uniform that you must wash, you may be able to claim the tax relief on the laundry by claiming the flat-rate allowance for your trade. 

Which you can do here.

Admin Costs

As a Self-Employed individual, your ‘admin costs’ may include items such as a business phone, stationery or postage costs.

As an Employed individual, you are unable to claim expenses in this category.

Other general business expenses

As a Self-Employed individual, you can claim expenses back on things such as public liability insurance, union fees, working in a home office, etc.

As an Employed worker, you can claim expenses back for trade union and subscription fees, As long as they relate to your specific job.

The easiest way to do this

The easiest and most efficient solution to always providing this information is to trade through a business account and use accounting software such as QuickBooks.

QuickBooks can track your mileage and expenses while seamlessly sharing this information with your accountant to ensure you do not miss out on any potential tax relief. 

Please note this material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. 
All claims should be reviewed individually, and we recommend contacting us before you engage in transactions if you are unsure. 
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