Business

If you are self-employed, claiming all of your allowable business expenses can significantly reduce your tax bill. For example, if your business turnover is £40,000 and you have £10,000 of allowable expenses, you will only pay tax on your taxable profit of £30,000. However, personal spending and money withdrawn from the business for private use cannot be claimed.

A wide range of business costs may qualify as allowable expenses. These include office expenses such as stationery, phone bills and software subscriptions, as well as the costs of running business premises, including rent, utilities, business rates and insurance. Travel expenses, including fuel, parking charges and public transport costs incurred for business journeys, can also be claimed.

Other common deductible costs include staff wages, subcontractor fees, uniforms and protective clothing, advertising and marketing expenses, website costs, professional subscriptions and certain training courses that help maintain or update existing business skills. Businesses that buy goods for resale can also claim the cost of stock and raw materials.

Those who work from home may be able to claim a proportion of household costs, including heating, electricity, internet charges and rent or mortgage interest. Alternatively, many self-employed individuals can use HMRC's simplified expenses system, which uses flat-rate allowances for working from home, use of vehicles and living at business premises.
 

There are special rules to prevent close companies, generally companies controlled by a small group of individuals, from allowing directors or shareholders to take money out of the company without paying the appropriate tax. Under CTA10/S455, if a close company makes a loan to participators (typically a shareholder, director or someone with significant influence) it can be liable to pay tax on that transaction.

The S455 charge does not automatically make the loan a distribution or income for the recipient, but the company must account for the tax. Some limited exceptions exist, such as loans made in the ordinary course of a lending business.

If a loan remains outstanding beyond nine months and one day after the end of the company’s accounting period, the company must pay a tax charge, calculated as a percentage of the loan amount. This ensures that short-term loans that are quickly repaid do not trigger the charge. The tax is calculated on each new loan or benefit in an accounting period, not the total outstanding balance.

Loans to directors or employees on beneficial terms may also create additional tax liabilities under employment income rules. Companies must include any S455 liability in their Corporation Tax return.

There are simplified expenses arrangements available for sole traders and business partnerships (with no corporate partner) that allow the use of fixed mileage rates instead of working out the actual costs of buying and running a vehicle (such as fuel, insurance, servicing and repairs). This simplified method is optional, but if you choose to use it for a specific vehicle, you must continue to use it for that vehicle for as long as it is used for business purposes. The simplified expenses regime is not available to limited companies or partnerships involving a corporate partner.

Under simplified expenses, the following flat rates per business mile are available for vehicle costs that are wholly and exclusively for business use:

The number of people in the vehicle does not affect the rates above. The rates are only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. For example, travel from home to work is not a qualifying journey.

The self-employed can continue to claim for other costs not covered by the flat rate for mileage such as parking, tolls, and congestion fees as well as other separate travel expenses such as train journeys.

The salaried member legislation applies to certain members of a Limited Liability Partnership (LLP) whose terms of membership are more like an employee than a partner. To be a salaried member, the individual must perform services for the LLP in their capacity as a member.

The legislation uses a three-part test. If all three conditions apply, the member is classified as a salaried member for tax purposes:

• Condition A – Disguised salary: At least 80% of the member’s pay is fixed, or any variable amounts do not vary in line with the LLP’s overall profits or losses.
• Condition B – Lack of influence: The member has no significant influence over the LLP’s affairs.
• Condition C – Insufficient capital stake: The member’s capital contribution is less than 25% of their expected reward package.

If a member can show that at least one condition does not apply, they continue to be treated as a partner.

The rules do not apply to:

• Companies
• Individuals who do no more than invest money
• Individuals who no longer provide services for the LLP but continue to receive a profit share

HMRC examples illustrate that remuneration linked to overall firm profits, rather than individual performance, does not create a salaried member situation. Professional qualifications or experience are also irrelevant, what counts is the member’s role and risk exposure in the LLP.

The income generated from land or property in the UK is treated as arising from a UK property business. The underlying legislation defines this broadly to include all activities that produce rental income or similar receipts from UK land, whether the taxpayer is subject to Income Tax or Corporation Tax.

Although property income is treated as coming from a business, landlords are not generally regarded as trading unless they meet the normal trading tests. As a result, most trading-related tax reliefs, such as certain Capital Gains Tax reliefs, do not usually apply. Property business profits are instead calculated using principles similar to those for trading profits.

Since the 2017–18 tax year, the cash basis is the default method for calculating profits and losses for most individual landlords. However, companies and some other landlords must still use Generally Accepted Accounting Practice (GAAP).

A wide range of persons can carry on a UK property business, including individuals, partnerships, trustees, companies and non-residents with UK property income. Using an agent does not change who is treated as carrying on the business.

In most cases, all UK property income is treated as part of one single property business, allowing income and expenses across different properties to be combined. UK and overseas property, however, are treated as separate businesses. Activities carried out in different legal capacities, such as personally, as a partner or as a trustee, are also treated as separate property businesses for tax purposes.

The new 40% First Year Allowance came into force from 1 January 2026. This marks an important development for businesses investing in plant and machinery. The new allowance was first announced at Autumn Budget 2025 and is intended to encourage continued capital investment while changes to other capital allowance rates take effect.

This means that since 1 January 2026, businesses can claim a 40% First Year Allowance on qualifying main-rate plant and machinery expenditure. This provides an immediate deduction against taxable profits in the year the asset is acquired, improving cash flow and bringing forward tax relief.

A key feature of the new allowance is its broad availability. It applies to assets acquired for leasing, which were excluded from full expensing, and it is also available to unincorporated businesses such as sole traders and partnerships, who were unable to benefit from the full expensing regime. The allowance has been introduced on a permanent basis, providing greater certainty for long-term investment and capital planning.

The new 40% First Year Allowance sits alongside existing reliefs, including full expensing for companies and the Annual Investment Allowance. Taking advice before committing to significant investment can help maximise available reliefs and avoid any missed opportunities.

Starting a new business can be expensive, but many of your pre-trading costs may qualify for tax relief if they meet the right conditions.

There are special tax reliefs for pre-trading expenses that are incurred before a business starts trading. This could include expenses that are required to help a business prepare for trading such as buying stock and equipment, renting premises, getting insurance and initial advertising expenditure. 

A deduction may be allowed where the following conditions are met: 

• The expenditure is incurred within a period of seven years before the date the trade, profession or vocation commenced, and
• the expenditure is not otherwise allowable as a deduction in computing the profits of the trade, profession or vocation but would have been so allowable if incurred after the trade had commenced.

To be allowable, the pre-trading expenditure must be incurred wholly and exclusively for the purposes of the relief. To be clear, this means that no relief would be allowed where pre-trading expenses would not have been tax deductible if they had been incurred when the business was trading. The business should keep accurate records relating to pre-trading expenditure to be able to demonstrate that the expenses are qualifying.

The qualifying pre-trading expenditure is treated as incurred on the day on which the trade, profession or vocation is first carried on. 

Capital expenditure does not qualify for this relief but there are other special provisions for capital allowances. 

If you are self-employed, knowing which everyday costs you can legitimately claim can make a real difference to how much tax you end up paying.

The question of which costs you can claim against your self-employed business is a common one. If you are self-employed it is important to be aware if an expense is allowable or not. Any allowable costs can be used to reduce your taxable profit.

HMRC lists the following office expenses as being allowable:

• office costs, for example stationery or phone bills
• travel costs, for example fuel, parking, train or bus fares
• clothing expenses, for example uniforms
• staff costs, for example salaries or subcontractor costs
• things you buy to sell on, for example stock or raw materials
• financial costs, for example insurance or bank charges
• costs of your business premises, for example heating, lighting, business rates
• advertising or marketing, for example website costs
• training courses related to your business, for example refresher courses

If you work from home, you may also be able to claim a proportion of your costs for things including heating, electricity, Council Tax, mortgage interest or rent and internet and telephone use. You will need to adopt a fair and reasonable approach to apportioning your costs, such as by reference to the number of rooms used for business purposes or the proportion of time you work from home.

HMRC is currently contacting certain sole traders by email to reiterate the importance of adjusting business expenses for personal use.

The email explains:

• why personal use must be adjusted on your self-assessment tax return; and
• what you need to do if your business expenses cover business and personal use.

The email also includes links to GOV.UK for more detailed information on personal use adjustments and allowable expenses. This is a genuine email that HMRC recently sent (from 20 October 2025 up to and including 7 November 2025).

This is an important reminder for sole traders. In general, if sole traders use something for both business and personal reasons, they can only claim allowable expenses for the business costs.

However, there are simplified arrangements available to sole traders for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses regime is not available to limited companies or business partnerships involving a limited company.

Simplified flat rates can be used for working from home and for the business costs of vehicles. This method saves having to calculate the proportion of personal and business use.

The current monthly flat rates are based on the amount of business use of the home:

• 25 to 50 hours worked per month can claim – £10
• 51 to 100 hours worked per month can claim – £18
• 101 or more hours worked per month can claim – £26

Under simplified expenses, there are the following flat rates per mile available. These rates can be used instead of working out the actual costs of buying and running your vehicle, e.g. insurance, repairs, servicing, fuel.

• Cars and goods vehicles first 10,000 miles – 45p
• Cars and goods vehicles after 10,000 miles – 25p
• Motorcycles – 24p

Whilst using the flat rates is not compulsory, once a decision is made to use the simplification for a specific vehicle this must continue to be used for a vehicle as long as that vehicle is used for business purposes.

We would be happy to help you ascertain whether using simplified expenses or claiming based on actual costs incurred is more beneficial for your business.

Directors that have drawn remuneration from their companies as a mix of low salary and higher dividends would seem to be overlooked by the schemes announced in the past two weeks to support the employed and the self-employed.

In the first news story published by government announcing the Self-Employed Income Support arrangements (26 March 2020), the following paragraph was inserted:

“Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. 

On this basis, the only financial support that directors could claim is the Job Retention Scheme. This will be based on their salary – not salary plus dividends – and only if they furlough themselves (play no active role in their businesses). It is likely that a director's statutory responsibilities will not count as work if a claim under the Coronavirus Job Protection Scheme is made.