If you are self-employed you’ll have various running costs and expenses. You take these costs and expenses away from your business income to work out the profit in your accounts. You can only deduct certain expenses as they aren’t all allowable for tax purposes. You can also claim capital allowances for certain other costs or expenditure to reduce your taxable profits.
What are allowable expenses?
The general rule is that costs you pay with the sole purpose of earning business profits are allowable expenses. You cannot deduct costs:
VAT can affect the amount you include in your allowable expenses. If you are VAT registered – use the net amount (expense less VAT) to reduce your turnover, but you can only do this if the VAT on that expense is recoverable. You should also show turnover net of VAT. Alternatively, receipts and allowable expenses can be shown gross (including VAT) with the net payment to HMRC classified as an expense.
If you aren’t VAT registered – use the total amount spent on the expense (including VAT). For example of allowable and disallowable expenses see HMRC Expenses and Allowances or the self-employed – what you need to know: https://www.gov.uk/government/publications/self-employed-expenses-and-allowances