Your guide to self-employed tax deductions in the UK

Working for yourself brings freedom, but business costs are your responsibility. 

From marketing to business travel to legal and financial help, all your expenses come from your business income. If you’re based in the UK, the Revenue and Custom’s department (HMRC) lets you deduct many business-related costs from your taxes, potentially saving you money during tax time.

If you’re self-employed and looking to reduce your tax bill, you’re in the right place. This guide will cover the basics of filing self-employment taxes and the potential tax deductions you could make as a self-employed person in the UK.

What does it mean to be self-employed?

The HMRC defines a self-employed person as someone who runs their business for themselves and takes responsibility for its success or failure.

Self-employed individuals don’t have the same rights or responsibilities as employees. Plus, they aren’t paid through PAYE, so they’re responsible for paying their own taxes.

In many cases, self-employed people are also sole traders, which is a business structure. But they don’t have to be. You can be self-employed and pick another business structure like setting up your own limited company or becoming a partner in a business.

Self-employed tax bands

In the UK, the tax bands for the 2023-2024 tax year by taxable income are as follows:

• Personal allowance: Up to £12,570 — 0%

• Basic rate: Between £12,571 and £50,270 — 20%

• Higher rate: Between £50,271 and £125,140 — 40%

• Additional rate: More than £125,140 — 45%

Scotland’s self-employed tax bands are different. Here they are for the 2023–2024 tax year:

• Personal allowance: Up to £12,570 — 0% (not available in Scotland if you earn more than £125,140 yearly)

• Starter rate: Between £12,571 and £14,732 — 19%

• Basic rate: Between £14,733 and £25,688 — 20%

• Intermediate rate: Between £25,689 and £43,662 — 21%

• Higher rate: Between £43,663 and £125,140 — 42%

• Top rate: More than £125,140 — 47%

You pay taxes on your profits, not your earnings. Your profits are the money remaining after removing all allowable deductions, which we will discuss next.

Self-employment tax deductions

The HMRC offers numerous allowable business expenses to reduce the cost of doing business. However, you can’t claim these if you use your £1,000 tax-free trading allowance.

Also, if you have a tool that is used for both business and personal use, you can only claim the time used for the business.

So, what are the expenses that are tax-deductible in your business?

Office costs

The HMRC offers potential tax relief on office costs. Here are some work-from-home tax deductions:

• Rent/mortgage

• Utilities

• Water

• Property insurance

• Security

If you work from home, you can only deduct a proportion of the qualifying expenses based on the percentage of your home that your home office occupies and how often you use that space.

For example, say your entire home is 500 m². Your study is 50 m², or 10% of your home, and you work five days a week, or 71% of the week.

Your electricity bill is £600. If 10% of your home is your office, but you can only claim 71% of that space, then you can claim £42.60.

For business offices, you cannot claim the cost of buying, altering, or improving the building. These may qualify as capital allowances, which will be discussed later.

That said, here are some allowable business office expenses:

• Rent

• Utilities

• Cleaning

• General repairs and maintenance (NOT improvements/alterations)

• Water

Travel and accommodation costs

Any travel you do for your business may be tax-deductible — as long as the reason is legitimate. Examples of deductible business travel include the following:

• Meeting with clients to discuss strategy

• Gaining new customers through sales conversations

• Learning new business skills

Here are some travel costs that may be deductible if traveling for an approved reason:

• Hotels/lodging

• Travel to and from your destination 

• Paid parking at your destination

• Transportation (only while at the destination)

• Wifi purchased for business use (e.g., that used while working on the plane)

• Meals (for overnight trips only)

• Business calls/printing costs

• Mileage if you’re driving your vehicle

Remember to keep detailed records of all travel expenses. That means saving receipts for all of your expenses and mileage logs if you travel via your personal vehicle.

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Staff expenses

Hiring employees and contractors can help you scale your business. The costs involved in compensating these individuals might even qualify you for certain types of tax relief. 

Here are some potential expenses to claim if you employ people or hire contractors or subcontractors:

• Salaries and wages

• Benefits (such as additional health insurance or life insurance)

• Bonuses

• The employer portion of National Insurance

• Pensions

• Contractor/subcontractor fees

• Agency fees

Clothing expenses

Work-related clothing expenses may be deductible. If you need protective clothing, for instance, those items might be deductible. Or if you’re a self-employed actor and you have to buy costumes for your job, you could potentially get those expensed.

You cannot claim everyday clothing, though, even if you wear that clothing while working.

Advertising and marketing

Every business needs to promote itself to survive. And while marketing and advertising cost money, you may be able to deduct the following kind of costs. 

• Print advertising/marketing (such as newspapers, directories, or direct mail ads)

• Online marketing (such as Facebook or Google ads)

• Website costs (such as hosting or software)

• Free samples of your product

You cannot claim deductions for event hospitality or entertaining customers, clients, or suppliers. These don’t count as advertising and marketing for the HMRC’s purposes.

Materials for reselling goods

If your business sells physical goods, the cost of materials involved in making or acquiring those goods may be tax-deductible.

Examples of‌ deductible materials costs include:

• Raw materials

• Products for resale

• Direct costs related to producing your goods

You cannot claim goods or materials for private use. You also can’t claim equipment depreciation here.

Legal, financial, and professional costs

The costs of legal or financial professionals may be tax-deductible. 

Potentially deductible professional fees include those paid to: 

• Accountants

• Solicitors

• Architects

You cannot claim fines for illegal activity or the legal costs of purchasing property or machinery. If you use traditional accounting, these are part of your capital allowances.

Bank and financial institution fees may also be deductible. Potential deductions include the following:

• Bank fees

• Credit card charges made for the business

• Hire purchase interest

• Interest on loans for business purposes

• Credit card interest on business cards

• Lease payments

Under the cash basis of accounting, you can only claim up to £500 in interest and bank charges. You cannot claim loan repayments, overdrafts, or finance arrangements as deductions.

Finally, you can‌ claim business insurance policies, such as public liability insurance.

Businesses that use traditional accounting can claim bad debt or money owed by but never received from customers. This does not include debts which are:

• Included in turnover

• Related to fixed asset disposal

• Improperly calculated 

Education and upskilling

Many self-employed people invest in courses, conferences, and other educational materials to sharpen their skills and stay on top of industry trends. Expenses related to education and upskilling may be tax-deductible if they help you improve your business. For example, if you’re a freelance copywriter and invest in a coaching group that helps you write more persuasive copy, the the fee to join that group could be a tax deduction.

Other educational-related deductions include the following:

• Fees for trade or professional journals

• Fees for trade body or professional organization membership if the group is related to your business

You cannot claim training courses that will help you start a new business or expand into new areas in your existing business.

For example, if you’re a copywriter and take a course to learn how to start an eCommerce business, that course will not be tax-deductible. However, if you start that business and take a course later on growing it, you might qualify for a deduction.

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Other potential sources of tax relief

Your potential tax deductions don’t stop at your business expenses. Depending on your business and personal financial activity, other tax relief is available when filing.

Review your situation each year to see if you qualify for any of the following:

Capital allowances

Capital allowances let you deduct some or all the value of a qualifying item from your profits. These are usually “capital assets,” such as:

• Equipment

• Machinery

• Business vehicles

Like allowable expenses, you cannot claim capital allowances if you use your £1,000 tax-free trading allowance.

Furthermore, you must use the traditional accounting method for all capital allowances except your vehicle.

If you use cash-basis accounting, you can still claim your business vehicle as a capital allowance. However, all other “capital allowance” items must be claimed as allowable expenses.

Here’s more information from the HMRC on claiming capital allowances.

Pension contributions

As a self-employed person, you can join a pension scheme in addition to the National Insurance program to save more for retirement.

These pension contributions may be tax-deductible for self-employed individuals. 

However, compare pension schemes and understand terms, limits, and other details before picking one — not just for the tax consequences but also to ensure you find the best one for your needs.

Charitable deductions

The UK government offers plenty of ways to deduct qualifying charitable contributions from your taxes.

Qualifying charities include many charitable organizations and community amateur sports clubs (CASCs). The latter must be registered properly. 

You may be able to deduct against income and capital gains taxes. You can give money, land, property, and shares. If you decide to deduct charitable giving, you must keep detailed records in case of an audit.

Losses from previous years

You will have a loss if your allowable expenses and capital allowances exceed your sales income or turnover in a given tax year. You may be able to “carry” these losses forward to future tax years to offset income in those years.

When writing off past losses against income, the loss and income must come from the same trade or business.

For example, say you make a loss as a freelance writer this year, but next year, you start an eCommerce business and make a profit. You cannot deduct your freelance writing loss against your eCommerce profits.

The rules can vary based on many factors. Check out the HMRC website for guidance and consider seeking professional advice to ensure you claim the correct amount.

Self-employment tax deduction FAQs

Here are the answers to some frequently asked questions about self-employed tax deductions in the UK:

Is life insurance tax-deductible for the self-employed?

Generally, life insurance premiums are not tax-deductible for sole traders as life insurance isn’t strictly necessary to do business.

Are pension contributions tax-deductible for the self-employed?

Yes, they may be tax-deductible if you meet certain requirements. This page from ‌HMRC offers information on when pension contributions are tax-deductible.

Is private health insurance tax-deductible for the self-employed?

Private health insurance may be tax-deductible in certain instances, but the rules are complex. Consider seeking professional advice from a tax expert.

The bottom line on self-employment tax deductions

Running your own business is not cheap. The best way to maximize your returns is to have a good understanding of tax deductions on your expenses. HMRC provides self-employed workers with several forms of tax relief to whittle away at their tax bills — as long as they qualify, of course.

However, you must track and keep detailed documentation for each expense in case of an HMRC audit. Plus, you’ll need to keep copies of your other tax filing documents.

Speaking of record-keeping, you’ll also need to do the same for your revenue. That means tracking every invoice you send alongside the relevant tax forms.

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