Disallowable expenses are costs you cannot claim on your tax return to reduce your tax liability. But which expenses fall into this category?

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In this guide, I'll clarify which expenses are not deductible (even if you consider them business-related) and how to manage them when completing your tax return.

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This guide is intended for individuals who are self-employed. Different rules apply if you operate through a Limited Company and pay corporation tax.

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Friendly Disclaimer:

 

While I am an accountant, I’m not your accountant. The information provided here is legally accurate but meant for guidance only. Each individual’s situation is unique, so you should use your own judgement when applying this advice. If you have any doubts or questions, consult a qualified professional to avoid potential penalties.

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1. What are Disallowable Expenses?

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Disallowable expenses are costs that you incur but cannot claim as a tax deduction, even if they are related to running your business.

If you're unclear about how expenses impact your tax bill, this guide to self-employed tax will help you understand how taxable business profit is calculated.

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Allowable expenses are those you can claim against your business income to reduce your tax liability. Read this guide to learn about allowable expenses for sole traders.

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2. Examples of Disallowable Expenses

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Here are some common HMRC disallowable expenses:

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2.1 Travel from Home to Your Office

Travel between your home and your office is not an allowable business expense. If you are claiming business travel, refer to this guide to understand which journeys qualify as a business expense.

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2.2 Client Entertainment

Client entertainment is generally not deductible, even if it's for business purposes. While you can claim for gifts given to clients, expenses for meals or events aimed at securing or maintaining business relationships cannot be claimed.

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2.3 Fines and Penalties

Fines and penalties are disallowable expenses. This includes:

• Self Assessment Penalties

• Parking Fines

• VAT Penalties

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2.4 Clothing

Clothing expenses are generally disallowable unless the clothing is:

• A uniform

• Protective clothing required for your work

• Costumes for actors or entertainers

Everyday clothing or business suits are not deductible.

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2.5 Lunches

You cannot claim everyday lunches as business expenses. However, if you are traveling away from your usual place of work, you may be able to claim for meals. For more details, see this guide on claiming meals and subsistence.

2.6 Training for New Skills
Costs for training to acquire new skills are disallowable. However, you may claim training costs when setting up a new business.

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2.7 Salary

As a sole trader, any salary paid to yourself is not deductible. You are taxed on your total income, regardless of how much you pay yourself.

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3. Handling Disallowable Expenses on Self-Assessment Tax Returns

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Disallowable expenses must not be claimed on your self-employment tax return, as incorrect claims can lead to penalties from HMRC.

When completing your tax return, simply exclude disallowable expenses from your total expenses, whether you’re entering a single figure in the short-form self-employment section or providing a detailed breakdown.

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Related:

• How to Claim Self-Employed Expenses

• How to Claim the Use of Home as Office Allowance

• Can I Buy a Car Through My Business as a Sole Trader?

• Self-Employed Mileage Allowance Explained

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