I’ve updated this post on 28 October 2020 for changes in recent legislation
Not all your business expenses are tax deductible, even if you incur them as part of running your small business. These costs are known as disallowable expenses.
HMRC sets out clear rules as to what you can and can’t expense.
In this post, I’ll help you to understand what they are, give you examples of disallowable expenses and show you how to handle them on your tax return. I’ve also put together an allowable and disallowable expenses PDF list for you to keep.
This advice in this guide is for self-employed business owners and sole traders. Different rules may apply if you have a Limited Company.
What are Disallowable Expenses?
Disallowable expenses are things that you pay for but cannot be claimed as a tax deduction, even though you may feel they were paid for as part of running your business.
Examples of Disallowable Expenses
Here are some common HMRC disallowable expenses:
Travel from Home to Your Office
If you have chosen to rent an office or space from which to base yourself from then any travel between you home to your office is not allowable.
You can read more about Claiming Business Travel when You are Self Employed here.
It may be entirely work-related but client entertainment is a disallowable expense.
There are circumstance where you can buy a gift for your clients but if you take them out for a meal, even if it is to win a new contract or secure a business relationship, these costs cannot be claimed as an expense against your taxes.
Fine and Penalties
Any fines and penalties that you pay are disallowable. That includes things like:
- Self Assessment Penalties
- Parking Fines
- VAT Penalties
There are certain circumstances where someone who is self-employed can claim for the cost of their clothing as an allowable expense.
You can claim for clothing as an expense if it is:
- a uniform;
- protective clothing that you need for your work;
- costumes because you are an actor or entertainer.
Anything else will be a disallowable expense. So that’s things like every-day clothing or business suits.
You cannot claim your everyday lunches against your HMRC taxes. But if you are out and about, away from your normal place of work, then you may be able to claim for your lunches.
This is a complex area and I’ve written a separate guide to Claiming for Food against your self-employment taxes.
Training for New Skills
Whilst you can expense any training you do to improve your skills and keep you on top of your game, you cannot claim for the training costs for learning new skills.
Your salary is not a tax-deductible expense for sole traders.
When you are self-employed, HMRC taxes you on all the money you make, regardless of how much you pay yourself.
Allowable and Disallowable Expenses PDF Cheat Sheet
I have put together an allowable and disallowable list for you to download so you can check what you can claim as an expense.
Watch out for disallowable expenses, especially if you complete your own tax return. Incorrect claims can result in HMRC penalties. To help you work out what you can claim on your taxes, read my Guide to Claiming Self Employed Expenses. There is also more guidance on the HMRC .gov website to help you too.