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Tax allowances and reliefs if you're self-employed

If you're self-employed there are various deductions, reliefs and allowances that you can get to reduce your tax bill. You deduct some from your gross business income to work out your profits. And you deduct others from your profits after you've worked them out.

You can deduct most of your business expenditure to work out your profits - but you can't deduct any private expenditure. And you can claim special reliefs for 'capital expenditure' - one-off expenditure to buy or improve an asset you keep and use for your business.

You can usually get deductions, reliefs and allowances for the current tax year and for the previous six years - but there are some where you have a shorter time limit for claiming.

This guide tells you about the tax allowances, deductions and reliefs you can get as a self-employed business person.

On this page:

Types of expenditure and associated tax relief

While you're running your business you're likely to spend money on different sorts of things. Your expenditure will usually fall into three different types:

  • capital
  • business
  • private

The type of expenditure it is affects whether - and how - you can get tax relief for it.

Capital expenditure

Expenditure on buying, creating or improving a business asset that you keep to earn the profits of your business is capital expenditure. So, the cost of buying a van for your business is capital expenditure but the cost of hiring it isn't.

Other examples of capital expenditure include the cost of buying business premises, machinery, computers, fixtures and furniture.

You won't be able to get tax relief for all types of capital expenditure. And if you can, there are special rules for how you can claim it.

You can't get tax relief for the full cost of an asset when you buy it. Instead, you can get capital allowances to reduce your taxable profits.

Business expenditure

You can get tax relief for your business expenditure as long as it's not:

  • capital expenditure
  • specifically non-allowable - for example entertaining expenditure

But to be allowable expenditure, it must be 'wholly and exclusively' for carrying on and earning the profits of your business. This means that your sole purpose for the expenditure must be a business purpose.

You can get some private benefit from the expenditure and still get tax relief for the amount spent for your business, as long as either:

  • the private benefit was incidental and not the reason for the expenditure
  • you can clearly identify and separate the expenditure between business and private purposes

You can deduct the full amount of your allowable business expenditure from your business income to work out your taxable profits.

This guide provides further information on the difference between 'allowable and non-allowable expenses' below.

Private expenditure

Private expenditure is what you spend on your day-to-day living expenses and your normal household expenses. It includes the amounts you take from your business as a wage - your 'drawings'.

It also includes the private part of any expenditure that's for both business and private purposes.

Private expenditure is non-allowable expenditure - you can't get tax relief for it.

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Allowable and non-allowable business expenses

A business expense is allowable if it:

  • isn't capital expenditure
  • isn't specifically non-allowable
  • is wholly and exclusively for business purposes

The most common expenses that are normally allowable include:

  • cost of stock
  • payroll costs
  • premises costs
  • repairs
  • motor and travel expenses
  • finance costs
  • administration costs
  • professional fees

Expenses incurred for both business and private purposes

Expenditure for a mixed private and business purpose is non-allowable expenditure. An example would be the cost of travelling to town to bank the business takings and do your private shopping at the same time.

If you can separate the expenditure between business and private purposes, the business part is allowable. So, if you use a car separately for business and private purposes, the proportion of the expenses that relates to:

  • business use is allowable
  • private use is non-allowable

You normally work out the allowable business and non-allowable private proportions based on the mileage covered for each.

Find out about the treatment of business expenses on the Business Link website (new window)

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Key expenses, allowances and reliefs if you're self-employed

The expenses, allowances and reliefs that you can get vary from business to business. It isn't possible to provide a complete list here, but some of the key ones are listed below - with links to more information.

Capital allowances

You can get capital allowances on the cost of:

  • plant and machinery - including cars, vans, computers, equipment, tools
  • fixtures and fittings - including shelves, furniture, electrical and plumbing fittings
  • some buildings - including industrial and agricultural buildings

Find out the basics for claiming capital allowances on the Business Link website (new window)

Motoring expenses

You can deduct the cost of using your car for business purposes. There are two ways of working out how much you can deduct:

  • a fixed rate for each mile travelled on business, using our fixed mileage rates
  • the actual expenses, worked out using detailed records of business and private mileage to apportion your recorded expenditure

Learn about deducting expenditure on business motoring on the Business Link website (new window)

Expenses related to premises

You can deduct the costs of maintaining your business premises - including rent, rates, heat, light, repairs and insurance. You can also deduct the business part of these costs if you run your business from home.

Go to information about deductions for premises costs (PDF 105K)

Administrative costs including professional fees and subscriptions

You can deduct the administrative costs of running your business, including advertising stationery, postage, telephone and fax. You may also be able to deduct the cost of trade or professional journals or subscriptions.

Go to information about deducting administrative costs (PDF 105K)

Get a list of subscriptions to approved professional bodies

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Special rules and situations

There are a number of situations when you might be able to get a particular tax relief or allowance.

If you're a farmer, market gardener or artist

You might be able to reduce your tax bill by claiming to average your profits over two years.

Go to information about averaging profits for farmers and market gardeners (PDF 313K)

Go to information about averaging profits for literary or artistic works (PDF 47K)

If you have a lodger

If you have a lodger in your own home, you can claim Rent a Room relief - you won't pay tax on rent up to a certain amount.

Go to information about Rent a Room relief for traders (PDF 72K)

If you're a foster or adult placement carer

If you're a foster carer and your income from foster care is below a certain amount you won't have to pay tax on it. If it's more, you can use simplified ways of working out your profits.

If you're an adult carer, you can choose to work out your profits by:

  • claiming Rent a Room relief
  • claiming a fixed expenses deduction
  • keeping full records

Go to information for foster carers and adult placement carers (PDF 69K)

Tax relief for 'overlap' profits

You use the profits shown by your annual business accounts to work out your taxable profits for each tax year - tax years run from 6 April to 5 April.

If your accounts don't end on 5 April, the way you work out your profits for the early years of your business may mean that you'll pay tax twice on the same profits. When your business ceases you can claim 'overlap' relief.

Find out about overlap relief (PDF 102K)

Tax relief if your business made a loss

If your business makes a loss you can get tax relief for it. You can do this by setting the loss against your:

  • other income of the same year or the previous year
  • profits from the business in later years
  • profits for the business in the previous three years if your business has ceased

Go to information about claiming relief for losses (PDF 60K)

Tax relief for expenses when your business has ended

There are special rules for taxing income and getting relief for business expenses after your business has ceased - these are called 'post-cessation' receipts and expenses.

Go to information about post-cessation receipts and expenses (PDF 61K)

How to get tax relief

You can get your tax reliefs and allowances by filling in your Self Assessment tax return.

Find out about completing your tax return

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