Business Expenses Accurately In 2025-26 Self-Assessment Returns
- Adil Akhtar
- 5 days ago
- 15 min read
Updated: 1 day ago
The Audio Summary of the Key Points of the Article:
Understanding Allowable Business Expenses for 2025-26
What Are Allowable Business Expenses in the UK?
Now, if you’re a sole trader or small business owner, you’re probably wondering what exactly counts as a business expense you can deduct on your Self-Assessment tax return. According to HMRC, allowable expenses are costs that are “wholly and exclusively” incurred for your business. This means the expense must be directly tied to running your trade, profession, or vocation—no sneaky attempts to claim your weekly takeaway! For the 2025-26 tax year, which runs from 6 April 2025 to 5 April 2026, these expenses can significantly reduce your taxable profit, lowering your Income Tax and Class 4 National Insurance contributions.
The key here is accuracy. HMRC doesn’t require you to submit receipts with your tax return, but you must keep meticulous records for at least five years after the 31 January 2027 filing deadline. If HMRC audits you, you’ll need to prove every claimed expense was legitimate. Common allowable expenses include office supplies, travel costs, staff wages, and certain utilities, but the devil’s in the details, as we’ll explore below.
Which Common Expenses Can You Claim?
Let’s get practical: what can you actually claim? HMRC’s rules for the 2025-26 tax year allow a wide range of expenses, provided they meet the “wholly and exclusively” test.
Here’s a rundown of the most common categories:
● Office Supplies: Think pens, paper, printer ink, and postage. If you’re buying laptops or software used for less than two years, these count too.
● Travel Costs: Business-related travel, like trips to client meetings, is deductible. This includes mileage (at 45p per mile for the first 10,000 miles, then 25p per mile for cars in 2025-26), train fares, and accommodation for overnight business trips. Travel from home to your regular workplace doesn’t count.
● Utilities: If you rent an office, you can claim rent, electricity, and heating. If you work from home, you can claim a proportion of household bills like council tax, mortgage interest (not capital repayments), and internet, based on business use.
● Staff Costs: Wages, pensions, and certain benefits for employees are deductible. For example, if you pay your assistant £20,000 annually, that’s fully deductible.
● Professional Fees: Legal fees for business matters (e.g., debt collection) and accountancy fees are claimable, but not costs for setting up your business.
● Marketing: Website hosting, domain fees, and advertising costs are fair game.
● Training: Courses directly related to your trade, like a graphic designer taking a Photoshop course, are deductible.
Table 1: Common Allowable Expenses for 2025-26
Expense Category | Examples | Notes |
Office Supplies | Pens, paper, printer ink, laptops | Software <2 years use is deductible; small tools generally not allowed. |
Travel | Mileage, train fares, hotel stays | 45p/mile up to 10,000 miles, 25p/mile after. No home-to-workplace travel. |
Utilities (Home Office) | Council tax, mortgage interest, internet | Claim proportionate to business use; simplified rates available. |
Staff Costs | Salaries, pensions | Must be for business purposes; benefits in kind may incur NI. |
Professional Fees | Accountancy, legal fees (business) | Setup costs not deductible. |
Marketing | Website costs, ads | Must be business-related; client entertainment not allowed. |
Can You Use Simplified Expenses?
Now, here’s a game-changer for some: simplified expenses. HMRC introduced these to make life easier for sole traders and partnerships (not limited companies). Instead of calculating the exact business proportion of costs like utilities or mileage, you can use flat rates. For 2025-26, the rates are unchanged from 2024-25:
● Home Office: If you work from home at least 25 hours per month, you can claim £10 (25-50 hours), £18 (51-100 hours), or £26 (101+ hours) per month. This covers utilities but not broadband or phone, which you can claim separately.
● Vehicle Mileage: 45p per mile for cars (first 10,000 miles), 25p thereafter; 24p for motorcycles; 20p for bicycles.
● Living at Business Premises: If you run a guesthouse, you can claim flat rates for personal use (e.g., £350-£650 per month based on occupants).
Be careful! Simplified expenses might save time, but they can result in smaller deductions than actual costs. For example, if Idris, a freelance web developer in Swansea, works 60 hours monthly from home, he can claim £18/month (£216/year). But if his actual utility costs are £1,500 annually and 40% is business-related, he could claim £600 by apportioning actual costs—nearly three times more.
How Do You Handle Dual-Purpose Expenses?
Now, consider this: what if an expense is partly for business and partly personal? HMRC allows you to claim the “identifiable proportion” that’s wholly and exclusively for business. Take your mobile phone bill. If Elowen, a Bristol-based caterer, uses her phone 60% for business calls and 40% for personal use, she can claim 60% of the bill. The same applies to home office costs. If she uses one room out of five in her house for work 50% of the time, she can claim 10% (1/5 × 50%) of eligible bills like electricity or council tax.
This apportionment requires careful calculation. HMRC’s Business Income Manual suggests keeping detailed logs, like a diary of business phone use or a floor plan showing your workspace. Without records, you risk HMRC disallowing the claim during an enquiry.
Table 2: Apportioning Dual-Purpose Expenses
Expense | Total Cost | Business Use | Claimable Amount | Calculation Method |
Mobile Phone | £600/year | 60% | £360 | Percentage of business calls logged |
Home Internet | £480/year | 50% | £240 | Proportion of work hours using internet |
Home Utilities | £2,000/year | 10% | £200 | 1 room of 5, used 50% for business |
What About Capital Allowances?
So, the question is: what if you buy big-ticket items like machinery or a computer? These are capital assets, not everyday expenses. For 2025-26, you can claim capital allowances to deduct their cost from your profits. The Annual Investment Allowance (AIA) lets you deduct up to £1 million annually for most plant and machinery, including computers, vehicles, and integral building features like heating systems. If you use cash-basis accounting (common for small businesses with turnover under £150,000), you can claim capital allowances for equipment but not cars.
For example, if Sioned, a Cardiff-based photographer, buys a £3,000 camera in 2025, she can claim the full cost under AIA, reducing her taxable profit by £3,000. If she buys a car, she must use mileage rates instead, as capital allowances don’t apply to cars under cash-basis accounting.
Practical Steps and Pitfalls to Avoid When Deducting Business Expenses
How Do You Record and Track Expenses Properly?
Now, let’s get to the nitty-gritty: keeping track of your expenses. None of us is a tax expert by nature, but getting your records in order is crucial for the 2025-26 Self-Assessment tax return. HMRC doesn’t ask for receipts when you file, but they can request them during an enquiry, which can happen up to five years after the 31 January 2027 filing deadline. So, what’s the best way to stay organised? Start by maintaining a dedicated system—whether it’s a spreadsheet, accounting software like QuickBooks, or even a simple notebook.
For every expense, record the date, amount, supplier, and purpose. For example, if Owain, a freelance graphic designer in Leeds, buys £200 worth of design software, he should note the purchase date, the software’s name, and that it’s for creating client logos. Digital receipts are fine, but keep them backed up. HMRC accepts scanned copies or photos, but paper receipts fade, so digitise them. Consider apps like Receipt Bank or Expensify to automate this process. If you’re claiming dual-purpose expenses, like home utilities, log how you calculated the business proportion—say, a diary showing work hours or a floor plan for your home office.
Table 3: Example Expense Tracking Template
Date | Description | Amount | Supplier | Business Purpose | Receipt Stored |
10/05/2025 | Printer ink | £45 | Stationery Ltd | Printing client proposals | Cloud folder |
15/06/2025 | Train fare (client meeting) | £80 | Trainline | Travel to Manchester client | Scanned PDF |
30/06/2025 | Home internet (50% business) | £24 | BT | Business emails, research | Bank statement |
What’s the Step-by-Step Process for Claiming Expenses?
Now, here’s where it gets actionable: how do you actually claim these expenses on your Self-Assessment return? For the 2025-26 tax year, most sole traders and small business owners file online via HMRC’s portal at www.gov.uk/log-in-file-self-assessment-tax-return. Here’s a step-by-step guide to make it foolproof:
Register for Self-Assessment: If you’re new to self-employment, register by 5 October 2025 to avoid penalties. You’ll get a Unique Taxpayer Reference (UTR).
Choose Your Accounting Basis: Decide between cash basis (recording income and expenses when money changes hands) or accrual basis (recording when invoiced or billed). Cash basis is simpler for businesses with turnover under £150,000.
Gather Records: Compile all expense records for the tax year (6 April 2025 to 5 April 2026). Use your tracking system to total allowable expenses.
Complete the Self-Employment Pages: In the online form (SA103S for short or SA103F for full), enter your total allowable expenses in the relevant box. For simplified expenses, use the flat rates and note them separately.
Double-Check Calculations: Ensure dual-purpose expenses are apportioned correctly. For example, if Cerys, a Cardiff-based consultant, claims 30% of her £1,200 annual phone bill, she enters £360.
Submit by 31 January 2027: File online to avoid a £100 late penalty. Paper returns are due by 31 October 2026, but online is easier and gives you more time.
Pay Any Tax Due: Your expenses reduce your taxable profit, affecting Income Tax (20% basic rate, 40% higher rate, 45% additional rate for 2025-26) and Class 4 National Insurance (6% on profits £12,570–£50,270, 2% above).
Be careful! Errors in calculations or claiming non-allowable expenses (like client entertainment or personal clothing) can trigger HMRC audits. If you’re unsure, consult an accountant to review your return before submission.
What Are Non-Allowable Expenses You Should Avoid?
So, the question is: what can’t you claim? HMRC is strict about expenses that don’t meet the “wholly and exclusively” rule. Common mistakes include claiming personal expenses or costs that have a dual purpose without proper apportionment. Here’s a list of non-allowable expenses for 2025-26:
● Client Entertainment: Taking a client to a football match or dinner is not deductible, even if you discuss business.
● Personal Expenses: Your gym membership or daily commute doesn’t count, even if you’re thinking about work!
● Fines and Penalties: Parking tickets or late tax payment penalties are on you.
● Clothing: Unless it’s branded protective gear (e.g., a logoed chef’s uniform), regular clothes like suits aren’t deductible.
● Capital Repayments: Mortgage capital repayments or loan principal repayments aren’t allowable, though interest may be.
For example, if Rhodri, a plumber in Wrexham, claims £500 for a new suit because he “meets clients in it,” HMRC will disallow it. But if he spends £200 on branded overalls, that’s claimable. Always check HMRC’s guidance at www.gov.uk/expenses-if-youre-self-employed to avoid costly mistakes.
How Do Pre-Trading Expenses Work?
Now, consider this: what if you incurred costs before officially starting your business? HMRC allows pre-trading expenses as deductions, provided they’re allowable and incurred within seven years before your trade begins. For instance, if Anwen, a Manchester-based florist, spent £1,000 on market research and £500 on a laptop in March 2025 before launching her business in June 2025, she can claim both on her 2025-26 return, as long as they’re business-related.
Keep records of these expenses, including dates and proof of payment, as HMRC may scrutinise them. The catch? They’re treated as incurred on the first day of trading, so they reduce your profits in that tax year.
What Happens If HMRC Questions Your Expenses?
Be careful! HMRC can open an enquiry into your Self-Assessment return, especially if your expenses seem unusually high compared to your turnover. In 2023-24, HMRC conducted over 300,000 compliance checks, with a focus on sole traders claiming excessive deductions. If you’re audited, you’ll need to provide receipts, bank statements, and logs explaining your calculations.
Take the case of Llinos, a freelance writer in Aberystwyth. She claimed £5,000 in travel expenses for 2024-25, but HMRC questioned why her turnover was only £15,000. Without a travel log showing client meetings, her claim was partially disallowed, and she faced a £1,200 tax bill plus penalties. To avoid this, keep detailed records and be conservative with claims. If HMRC contacts you, respond promptly and consider professional advice.
Table 4: Common Audit Triggers and How to Avoid Them
Issue | Example | How to Avoid |
High Expense-to-Turnover Ratio | £10,000 expenses on £20,000 turnover | Ensure expenses are proportionate; keep logs. |
Vague Descriptions | “Miscellaneous” expenses of £1,500 | Specify purpose for each expense. |
Missing Receipts | No proof for £2,000 in travel costs | Store digital or paper receipts for 5 years. |
Dual-Purpose Errors | Claiming 100% of home phone bill | Apportion accurately with evidence. |
How Can You Maximise Deductions Legally?
Now, it shouldn’t surprise you that there are ways to boost your deductions without crossing HMRC’s line. One strategy is to review your expenses regularly to catch overlooked items. For example, if you pay for professional subscriptions (e.g., to a trade body like the Federation of Small Businesses), those are deductible. Another tip is to claim training costs for skills directly improving your trade—like a baker attending a patisserie course.
If you’re using cash-basis accounting, consider timing purchases before 5 April 2026 to deduct them in the 2025-26 tax year. For accrual-basis users, invoice-related expenses can be claimed when billed, even if unpaid by year-end. Always cross-check with HMRC’s rules at www.gov.uk/self-assessment-tax-returns to stay compliant.
Key Takeaways and Advanced Strategies for 2025-26 Business Expense Deductions
How Can You Optimise Home Office Deductions?
Now, let’s talk about one of the trickiest areas: claiming home office expenses. If you’re working from home, whether full-time like a freelance coder or part-time like a tutor, you can claim a portion of your household costs for the 2025-26 tax year. The catch? You need to prove the business use proportion. HMRC allows two methods: actual costs or simplified expenses. For actual costs, calculate the percentage of your home used for work. Say, Gwilym, a Sheffield-based consultant, uses one room out of six in his house exclusively for work. That’s 16.67% of his home. If his annual utilities, council tax, and mortgage interest total £6,000, he can claim £1,000 (16.67%).
Alternatively, simplified expenses offer flat rates: £10, £18, or £26 per month based on hours worked from home (25-50, 51-100, or 101+ hours). For Gwilym, working 80 hours monthly, that’s £18/month or £216/year. If his actual costs yield a higher deduction, he’s better off calculating them. Always compare both methods, and keep records like utility bills or a workspace floor plan to justify your claim to HMRC. Check HMRC’s guidance at www.gov.uk/expenses-if-youre-self-employed for clarity.
What About Claiming Travel and Subsistence Costs?
So, the question is: how do you claim travel and subsistence without raising HMRC’s eyebrows? For 2025-26, business travel—like meetings with clients or attending trade shows—is deductible, but your daily commute isn’t. Mileage rates remain 45p per mile for the first 10,000 miles and 25p thereafter for cars, 24p for motorcycles, and 20p for bicycles. Subsistence, like meals during overnight business trips, is also claimable if reasonable. For example, if Branwen, a Liverpool-based architect, travels to a site 200 miles away and stays overnight, she can claim £90 (200 × 45p) for mileage and, say, £20 for a meal, provided she keeps receipts.
Be careful! HMRC scrutinises high travel claims, especially if they seem disproportionate to your turnover. In a 2024 case, a sole trader claimed £8,000 in travel but couldn’t provide a log linking trips to business purposes, resulting in a £2,500 disallowance. Maintain a travel log noting dates, destinations, and purposes to avoid this.
How Do Capital Allowances Work for Big Purchases?
Now, consider this: what if you’ve splashed out on equipment? Capital allowances let you deduct the cost of assets like computers, machinery, or vans from your profits. For 2025-26, the Annual Investment Allowance (AIA) covers up to £1 million annually for most plant and machinery. If Tegan, a Birmingham-based videographer, buys £5,000 worth of filming equipment, she can deduct the full amount under AIA, reducing her taxable profit. For assets not covered by AIA (like cars under cash-basis accounting), you may claim Writing Down Allowances at 18% (main rate) or 6% (special rate) annually.
For cars, the rules depend on emissions. Low-emission cars (≤50g/km CO2) qualify for 100% First-Year Allowances, while higher-emission vehicles use the main or special rate pools. Check HMRC’s capital allowances page at www.gov.uk/capital-allowances for details.
Table 5: Capital Allowances for 2025-26
Asset Type | Allowance Type | Rate | Example Deduction |
Equipment (e.g., camera) | Annual Investment Allowance | 100% up to £1m | £5,000 (full cost) |
Car (≤50g/km CO2) | First-Year Allowance | 100% | £15,000 (full cost) |
Car (>50g/km CO2) | Writing Down Allowance | 18% or 6% (based on emissions) | £2,700 (18% of £15,000) |
What Are the Risks of Overclaiming Expenses?
Be careful! Overclaiming can land you in hot water with HMRC. In 2024-25, HMRC recovered £13.4 billion through compliance checks, with sole traders and small businesses often targeted for incorrect expense claims. Common errors include claiming personal expenses (like a family holiday disguised as a business trip) or failing to apportion dual-purpose costs. If audited, you’ll need to provide evidence within 30 days. For example, if Dafydd, a Swansea-based electrician, claims £3,000 for “miscellaneous” expenses without receipts.
HMRC may disallow it entirely, leading to additional tax and penalties. To stay safe, categorise expenses clearly and store proof like invoices or bank statements.
How Can You Use Software to Simplify Tax Filing?
Now, here’s a time-saver: accounting software. Tools like FreeAgent or Xero can automate expense tracking, categorise costs, and generate reports for your Self-Assessment return. For 2025-26, these platforms integrate with HMRC’s Making Tax Digital (MTD) requirements, mandatory for VAT-registered businesses with turnover above £85,000. They calculate VAT and allowable expenses, saving hours of manual work. For instance, if Eira, a Bristol-based jeweller, inputs her £2,000 material costs into FreeAgent, it automatically allocates them as allowable expenses, ready for her SA103S form.
Summary of Key Points for Deducting Business Expenses in 2025-26
Allowable expenses must be “wholly and exclusively” for business, reducing your taxable profit for 2025-26.
Common deductions include office supplies, travel, utilities, and staff costs, per HMRC rules.
Simplified expenses offer flat rates for home office and mileage but may yield lower deductions than actual costs.
Dual-purpose expenses, like phone bills, require apportionment based on business use, backed by logs.
Capital allowances, like the £1m AIA, cover equipment costs; cars follow emission-based rules.
Pre-trading expenses within seven years before starting your business are deductible.
Maintain detailed records (receipts, logs) for five years to survive HMRC audits.
Avoid non-allowable expenses like client entertainment or personal clothing to prevent disallowances.
Use accounting software to streamline expense tracking and comply with Making Tax Digital rules.
File your Self-Assessment by 31 January 2027 online to avoid a £100 late penalty.
FAQs
Q1: What is the deadline for registering for Self-Assessment if you’re newly self-employed?
A1: New self-employed individuals must register with HMRC by 5 October following the end of the tax year in which they started their business to avoid penalties.
Q2: Can you claim expenses for a home office if you only work part-time from home?
A2: Yes, part-time home workers can claim a proportion of household costs based on business use, either using actual costs or HMRC’s simplified expense rates.
Q3: Are business insurance premiums deductible as expenses?
A3: Business insurance premiums, such as public liability or professional indemnity insurance, are fully deductible as allowable expenses.
Q4: Can you claim expenses for a business website?
A4: Costs for creating and maintaining a business website, including hosting and domain fees, are deductible as marketing expenses.
Q5: What happens if you miss the Self-Assessment filing deadline?
A5: Missing the 31 January online filing deadline incurs a £100 penalty, with additional penalties for delays beyond three months.
Q6: Can you claim expenses for business gifts?
A6: Business gifts costing up to £50 per recipient are deductible, provided they carry a conspicuous business advertisement and aren’t food, drink, or tobacco.
Q7: Are bank charges for a business account deductible?
A7: Charges for a dedicated business bank account, such as monthly fees or transaction costs, are allowable expenses.
Q8: Can you claim expenses for a business phone used for personal calls?
A8: Only the business-use portion of a phone bill is deductible, requiring a log to show the proportion of business calls.
Q9: What is the difference between cash-basis and accrual-basis accounting for expenses?
A9: Cash-basis records expenses when paid, while accrual-basis records them when incurred, affecting how deductions are timed.
Q10: Can you claim expenses for attending networking events?
A10: Costs for attending networking events, like ticket fees or travel, are deductible if they’re directly related to business promotion.
Q11: Are subscriptions to professional bodies deductible?
A11: Subscriptions to HMRC-approved professional or trade bodies relevant to the business are fully deductible.
Q12: Can you claim expenses for a leased business vehicle?
A12: Lease payments for a business vehicle are deductible, but the amount may be reduced for high-emission vehicles based on CO2 ratings.
Q13: What records are needed to claim subsistence expenses?
A13: Receipts and a log detailing the business purpose, date, and location of subsistence expenses, like meals during overnight trips, are required.
Q14: Can you claim expenses for business-related software subscriptions?
A14: Monthly or annual subscriptions for software used exclusively for business, like accounting or design tools, are deductible.
Q15: Are repairs to business equipment deductible?
A15: Repairs to equipment used wholly for business, like fixing a work laptop, are allowable expenses, but improvements may qualify as capital allowances.
Q16: Can you claim expenses for working from a coffee shop?
A16: Costs like coffee or Wi-Fi fees during business meetings at a coffee shop are deductible if directly related to business activities.
Q17: What is the penalty for claiming non-allowable expenses?
A17: Claiming non-allowable expenses can lead to HMRC disallowing the deduction, additional tax liabilities, and potential penalties up to 100% of the underpaid tax.
Q18: Can you claim expenses for business-related legal advice?
A18: Legal fees for business matters, like drafting contracts or debt recovery, are deductible, but personal legal costs are not.
Q19: Are costs for business premises maintenance deductible?
A19: Maintenance costs for business premises, like painting or fixing a shop’s roof, are deductible, but capital improvements may fall under capital allowances.
Q20: Can you claim expenses for training that improves existing skills?
A20: Training costs that enhance skills directly related to the current trade, like a chef attending a baking course, are deductible, but new skill acquisition may not be.
About The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 18 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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