When an individual is self-employed, they can reduce their taxable profit by claiming certain allowable expenses and deducting them from their business income. This means the individual will have less income tax to pay. Some common allowable expenses include, but are not limited to:
- Insurance
- Business services; including accountancy, subcontractors, freelancers, etc.
- Car insurance and fuel
- Travel
- Legal and professional fees
- Bank Fees
- Office costs, such as postage and stationery
- Advertising/marketing
- Training
- Staff costs
- Use of home as an office
What is an allowable expense?
The general rule is that, for an expense to be allowable, it must be ‘wholly and exclusively’ necessary for carrying out the business trade. Ad hoc expenses used for private purposes are therefore not allowable.
In some cases, an expense may serve as a dual purpose. For example, an individual may use their phone for both business and personal use. In such cases, only the business portion is an allowable expense and can be deducted from business profits.
For certain expenses, individuals may choose to use HMRC’s flat rate (simplified) expenses. These apply to things like petrol costs, motor vehicle expenses and situations where individuals live in their business premises. Using simplified expenses can make it easier to calculate business costs without needing to go through detailed records. It is up to the individual to decide which method is best for their business.
Already UK Resident Before 6 April 2025? You May Still Qualify
Even if you arrived in the UK before 6 April 2025, you may still benefit from the FIG regime for any remaining part of your four-year window, provided:
- You became UK tax resident in 2022/23 or later, and
- You had been non-resident for 10 consecutive years prior to your arrival.
In this case, you may be entitled to up to one year of FIG relief (from 6 April 2025 to 5 April 2026), depending on when you arrived. Although the relief can only be claimed from 6 April 2025 onwards, the qualifying conditions are based on your date of arrival.
As a Sole Trader, will I have access to the trading allowance?
Yes, sole traders have access to the trading allowance, provided their total business expenditure does not exceed £1,000. This allowance works by deducting a fixed amount of £1,000 from gross business income to give the taxable profit. However, it cannot be used in addition to other business expenses.
This option is ideal for individuals who prefer to deduct a fixed amount without calculating and itemising various expenses, or for those whose business costs are minimal and would benefit more from the flat £1,000 deduction.
Whatever approach an individual takes, it’s essential to keep accurate records and declare all relevant expenses on their self-assessment tax return.
Get in Touch
Consulting with your tax adviser can help maximize the tax relief available as well as outlining potential planning opportunities for owner managed and family run businesses. Get in touch with us today to benefit from our expert advice.
Author, Drupen Patel - Personal Tax Manager
