Tax Deductibles for the Self-Employed in the UK: A Consolidated Guide
- MAZ
- Nov 7, 2023
- 16 min read
Updated: Aug 27
How Much Can You Truly Deduct When You’re Self-Employed in the UK?
Picture this: you’re staring at your bank statement, wondering how much of your hard-earned income you actually get to keep after tax. The headline? For the 2025/26 tax year, the Personal Allowance remains at £12,570, the higher-rate threshold still begins at £50,270, and the additional rate starts at £125,140—all frozen as part of ongoing fiscal policy.
So, yes, much of the groundwork remains stable, but it’s exactly this freeze that traps more of your income into taxable zones—even modest revenue increases from your side hustle can push you over the edge.
Let me cut through the fog as I have for countless clients in London and beyond: yes, you can legitimately reduce your tax bill, but only if you claim all allowable deductions correctly—and avoid the common missteps I’ve seen trip up even the savviest freelancers.
Real-World Insight: “I’ve seen clients trip up when they don’t know how to apportion home-office bills.”
Late last year, I advised Anna, a web-designer from Manchester, who’d simply scratched “£300 broadband” into her Self Assessment. HMRC queried, of course. A little back-and-forth, and it turned out she spent just under 30 hours a month on her business—eligible under the simplified flat rate of £11/month, not the full broadband cost. That saved her time, paperwork—and a stress-inducing investigation.
Navigating 2025/26 Basics: UK Tax Allowances & Bands
Let’s get the key figures down in a table—and then break down what they really mean for you:
Allowance / Band | 2025/26 Value | Why It Matters |
Personal Allowance | £12,570 | |
Basic rate (20%) | From £12,571 to £50,270 | |
Higher rate (40%) | From £50,271 to £125,140 | |
Additional rate (45%) | Over £125,140 | |
Personal Allowance taper starts at | £100,000 |
Interpretation: Because these thresholds are frozen, inflation has nudged many into higher bands—putting you at risk of over-payment unless you maximise your allowances.
What You Can Deduct, in Plain English
Now, let’s get down to practice—what can self-employed folks actually deduct to whittle your taxable profits down?
1. Office & Home Office Costs
● Simplified flat rate if you work from home:
○ £11/month (25–50 hrs)
○ £22/month (51–100 hrs)
○ £33/month (101+ hrs)
● Or go for actual costs, proportioned to business use—for example, one room used solely for business 40% of the time means you can claim a fair slice of your rent/mortgage interest, utilities, insurance, broadband, etc.
2. Travel and Vehicle
● Mileage method: 45p/mile for first 10,000 business miles, 25p after; or 24p (motorcycles), 4p (bicycles).
● Actual costs method: claim business-use percentage of fuel, insurance, MOT, parking etc. Remember: daily commuting to a regular business address isn't claimable, but travel to client meetings, temporary jobs, or errands is.
3. Equipment, Tech & Capital Allowances
Most tools and equipment—computers, printers, machinery—are deductible. For larger purchases, use the Annual Investment Allowance (AIA), which covers most spending up to £1 million in 2025/26.
4. Professional & Business Services
● Accountant fees, legal support, trade subscriptions, insurance (professional indemnity, content, income protection) are all allowable expenses.
5. Marketing & Training
● Costs for website hosting, advertising, printed materials, exhibition fees, plus “updating-existing-skills” courses are claimable. (New-skill courses are typically excluded.).
6. Stock, Materials & Staff
● Stock purchased for resale, raw materials, packaging, delivery, wages, employer NI, pension contributions for staff—yes, they’re deductible.
7. Financial, Bank & Interest Costs
● Business bank charges (pro-rata reasonable use from a personal account), interest on business loans and cards are allowable too.
Why This Matters—Real-World Pitfalls I’ve Seen
● Hidden thefts of relief: One stall-holder client in Leeds declared only material costs, forgetting to claim mobile top-ups, marketing leaflets, and small-tools repairs. That oversight cost her hundreds in missed deductions.
● Mixing commuting with business travel: A consultant from Edinburgh claimed mileage for daily visits to a regular office. HMRC challenged and rejected that; she had neglected to distinguish commuting from business travel.
● Ignoring the trading allowance: A part-time illustrator earning around £900 from Etsy opted for the £1,000 trading allowance, thinking she'd save time. That meant forfeiting all other expense claims. Switching to the expense method yielded more relief.
Stepping Ahead: What to Do Next
Identify all expense categories matched to your work. Use the above list as a checklist.
Choose flat rates where simple, but default to actual costs when they offer more value—and when you’ve got the records to back it up.
Keep impeccable records—digital tools, spreadsheets, or set-aside folders for receipts. HMRC can investigate up to 6 years back—20 years if they think it’s deliberate.
Use HMRC’s short (SA103S) or full (SA103F) pages correctly. Don’t claim trading allowance and expenses at the same time GOV.UK.
Double-check your thresholds and ensure you don’t lose your personal allowance accidentally, especially if your income hovers near £100,000.
UK Tax Claims (Tax Deductibles) Dashboard
Checking Your Tax Position as a Self-Employed Person Step by Step
None of us loves tax surprises, but here’s how to avoid them: by double-checking your numbers as you go. The HMRC rules aren’t designed for easy bedtime reading, so let me walk you through what I’ve taught hundreds of clients over the years — how to verify whether you’ve overpaid, underpaid, or are sitting comfortably.
Step 1: Gather Every Source of Income
Think beyond your main trade. HMRC expects you to declare all income streams, whether from:
● Freelance/contract work
● Side hustles (Etsy, tutoring, driving apps)
● Property rental
● Dividends or interest
● PAYE employment alongside self-employment
Step 2: Log in to Your HMRC Personal Tax Account
This is your first checkpoint. Head to HMRC’s Personal Tax Account and:
Check your tax code (if you’ve also got PAYE work).
View your Self-Assessment status.
See what HMRC thinks you’ve earned and already paid.
Pro tip: Don’t assume HMRC’s numbers are correct. They often lag behind reality. I’ve seen a dozen cases where PAYE income was missing overtime or bonuses because the employer filed late.
Step 3: Run Your Own Manual Calculation
Here’s the framework I give my clients:
Start with all income (see Step 1).
Deduct allowable expenses (as covered in Part 1).
Subtract personal allowance (£12,570 if you’re under £100k income).
Apply tax bands:
○ 20% up to £50,270
○ 40% £50,271–£125,140
○ 45% above £125,140
Check National Insurance (self-employed pay Class 2 if profits > £6,725 and Class 4: 6% from £12,570–£50,270, 2% above).
Mini-worksheet example (2025/26):
● Income: £42,000
● Allowable expenses: £7,000
● Taxable profits: £35,000
● Personal allowance: £12,570 → taxable income = £22,430
● Tax due: 20% of £22,430 = £4,486
● NI Class 4: 6% of (£35,000–£12,570 = £22,430) = £1,346
● Class 2: ~£3.45/week × 52 = £179
● Total liability ≈ £6,011
When this is compared against payments on account or PAYE already deducted, you’ll see whether you’re ahead or behind.
Step 4: Spot Red Flags (Overpayment or Underpayment)
Watch for these common warning signs:
● Overpayments:
○ Side hustle losses not offset.
○ HMRC hasn’t updated a tax code (e.g., second jobs).
○ Claiming trading allowance when expenses were higher.
● Underpayments:
○ PAYE job plus self-employment not linked correctly.
○ Benefits in kind (company car, medical insurance) missing from coding notice.
○ Not accounting for high-income child benefit charge (if income > £50,000).
Anecdote: Claire, a part-time photographer in Bristol, had two PAYE jobs and a £9k self-employed profit. HMRC only coded one PAYE source. The other slipped through, leaving her £1,200 short — caught a year later with interest.
Comparing PAYE vs. Self-Assessment: Why It Matters
Let’s clear up a myth. Many part-timers think PAYE “takes care of everything.” It doesn’t. PAYE only covers the employment it’s applied to. Anything else must be declared in Self-Assessment.
Aspect | PAYE | Self-Assessment |
Covers | Employment income only | All income (employment + self-employment + rental + dividends etc.) |
Adjustments | Via tax code | Direct in return |
Timing | Deducted monthly | One/two lump sums (31 Jan & 31 July) |
Risk | Over-deduction or missed allowances | Under/over payment depending on accuracy |
Scenario: A nurse from Cardiff with £36k PAYE income and £4k freelance tutoring. PAYE handled her job fine, but the tutoring slipped through. Without filing SA, she risked fines. Once declared, she paid just £800 tax — and avoided a penalty.
Handling Multiple Income Sources the Smart Way
Here’s where things get messy — but manageable if you do it step by step.
Combine everything into one taxable pot (except ISA interest/dividends).
Expenses are matched to self-employment only, not employment.
Rental income needs its own calculation sheet (SA105).
Dividends and savings interest have their own allowances (£500 dividend allowance in 2025/26, £1,000 savings allowance for basic rate).
Case study: Michael, an engineer in Glasgow: £52k PAYE + £8k self-employment + £6k dividends.
● PAYE already taxed most of his £52k.
● £8k freelance → £8k × 40% = £3,200 tax + Class 4 NI.
● Dividends: £6k – £500 allowance = £5.5k × 33.75% = £1,856. He was shocked at the bill, but proper planning (ISA transfers, pension contributions) reduced it the next year.
Scottish and Welsh Income Tax Variations
Now, let’s think about your situation if you’re in Scotland or Wales. Too many online guides skip this.
Scotland (2025/26)
Band | Rate | Threshold |
Starter | 19% | £12,571–£14,876 |
Basic | 20% | £14,877–£26,561 |
Intermediate | 21% | £26,562–£43,662 |
Higher | 42% | £43,663–£125,140 |
Top | 47% | £125,141+ |
So, a Scottish freelancer on £45k profit pays more than an English one at the same income. I’ve had Dundee clients caught off guard by that 42% higher band kicking in much earlier.
Wales
For 2025/26, Wales has power to vary, but currently mirrors England. Always double-check on GOV.UK.
Rare But Costly Scenarios You Should Know
Emergency Tax Codes
If you’ve taken on a short-term PAYE job while also self-employed, you may see codes like 1257L W1/M1. These mean HMRC assumes you start fresh each week/month — often over-taxing you. I’ve recovered thousands in refunds for actors and seasonal workers this way.
High-Income Child Benefit Charge
If either partner earns above £50,000, part of child benefit must be repaid — 1% for every £100 over. At £60,000+, it’s fully clawed back. Many self-employed parents miss this, only to face backdated demands. I once had to help a couple in York repay three years’ worth — nearly £4,000.
Side Hustles Over £1,000
Earned under £1,000? Trading allowance applies, no need to declare (unless you want to). Over? Declare the lot. HMRC has been cross-checking Etsy, Uber, and Airbnb data aggressively since 2023.
Checklist: How to Avoid Costly Errors
● Keep a log of all income streams
● Check your tax code matches reality
● Use your personal tax account every quarter, not just at year-end
● Run a manual calculation to cross-verify HMRC’s estimate
● Distinguish commuting vs. business travel
● Double-check Scottish/Welsh rates if applicable
● Watch for emergency codes after job changes
● Review child benefit charge if income > £50k
● Consider pension contributions or gift aid to reduce taxable income
● File on time — late penalties start at £100 and climb fast
Taking Your Self-Employed Tax Deductions to the Next Level
So, the big question on your mind might be: “I’ve grasped the basics — but what about the tricky bits that affect me as a growing business owner or contractor?” That’s exactly where most online guides stop, and where I want to take you further.
In my nearly two decades of advising clients — from one-man joinery shops in Birmingham to digital agencies in London turning over seven figures — the devil has always been in the advanced layers of UK tax. Let’s peel those back.
VAT and the Self-Employed: When to Register, When to Benefit
If your turnover tips above £90,000 (2025/26 threshold) in a rolling 12 months, VAT registration isn’t optional. But here’s the trap: many register late, triggering backdated liabilities and penalties.
Case story: A fashion e-commerce seller in Leeds hit £100k turnover in August 2024 but ignored VAT until year-end. HMRC billed £7,000 VAT plus interest. We negotiated a Time to Pay arrangement, but the stress was avoidable.
Tips for managing VAT well:
● Track turnover monthly against the threshold.
● Consider voluntary registration if you buy a lot of VAT-able supplies — reclaim input tax and offset.
● Explore the Flat Rate Scheme (turnover under £150k) for simplicity. A graphic designer client saved hours of admin — though it’s not always cheaper, so run the numbers.
CIS (Construction Industry Scheme): A Special Minefield
Now, let’s think about you if you’re in construction. Whether subcontractor or contractor, the CIS rules make HMRC your ever-present business partner.
● Subcontractors: 20% deducted at source (30% if unverified). You can reclaim or set off against tax via your Self-Assessment.
● Contractors: Must deduct tax from subcontractors’ payments and file monthly CIS returns.
Anecdote: I once helped a joiner from Nottingham who assumed CIS deductions were his “full tax.” Wrong. After deducting expenses, his effective tax was lower, and we claimed a £2,400 refund. Don’t leave refunds on the table.
Pensions and Gift Aid: Underused Tax Relief
Pension contributions remain one of the cleanest ways to trim tax — especially if you’re flirting with losing your personal allowance (income above £100,000).
● Every £100 you contribute to a pension saves you £20 tax at basic rate, £40 at higher rate, £45 at additional rate.
● It can also preserve child benefit eligibility or personal allowance.
Example: Sarah, a consultant earning £102,000, contributed £2,000 to her pension. That brought her back under the £100k taper, restoring her full £12,570 allowance and saving £2,514 in tax.
The same applies for Gift Aid donations — often overlooked. Keep your receipts, tick the box, and extend your basic-rate band.
Capital Gains Crossovers
If you sell an asset — property, crypto, shares outside ISAs — you might face Capital Gains Tax (CGT). For 2025/26, the annual exempt amount is just £3,000.
Rates depend on income tax band:
● 10%/20% for most assets.
● 18%/24% for residential property.
Scenario: A landlord client sold a second home in 2025 for £60,000 gain. Combined with £40,000 self-employed profit, he tipped into higher-rate CGT, paying 24%. Advance planning (e.g. timing sales across tax years, or spousal transfers) can halve the bill.
Record-Keeping and Digital Links
Since Making Tax Digital (MTD) is rolling out fully for self-employed businesses from April 2026, it’s not just about claiming deductions — it’s about proving them digitally.
Practical checklist:
● Use software (QuickBooks, Xero, FreeAgent).
● Keep scanned receipts — HMRC accepts digital.
● Track VAT and CIS via integrations to avoid rekeying.
Clients who still rely on shoeboxes of receipts? They spend more with me fixing errors than they’d save doing it right the first time.
How a Tax Accountant Can Help You With Self-Employed Tax Deductibles
Now, you might be thinking: “This all sounds doable — why would I need an accountant?” Fair question. Here’s the value, based on what I’ve delivered for clients time and again:
Spotting deductions you’d miss — from mileage apportionments to obscure reliefs (like use of home as office).
Avoiding penalties — by filing correctly, on time, and in line with HMRC’s ever-changing formats.
Strategic planning — like pension timing, dividend vs. salary for limited companies, or CGT deferral.
Handling disputes — I’ve represented clients in HMRC enquiries where small mistakes ballooned into potential five-figure claims. We settled for a fraction.
Time and headspace — freeing you to run your business rather than decode tax forms.
It’s not just about crunching numbers — it’s about sleeping easier knowing you won’t get that dreaded brown HMRC envelope with “Notice of Enquiry” on it.
Summary of Key Points
Personal allowance remains frozen at £12,570 (2025/26) — pushing more self-employed into higher bands. Watch thresholds carefully.
→ Even modest profit increases can trigger bigger tax bills.
Deductible expenses include home office, travel, equipment, marketing, insurance, and professional fees.
→ Use simplified rates when easier, but actual costs when higher.
Trading allowance (£1,000) is useful, but only when expenses are low.
→ Don’t claim both expenses and the allowance together.
Check your HMRC Personal Tax Account regularly.
→ Don’t assume HMRC has the full picture of your income.
Multiple income sources must be declared together.
→ PAYE plus self-employment often leaves gaps unless you file SA correctly.
Scottish tax bands differ sharply from England and Wales.
→ Many pay higher rates earlier — plan accordingly.
Common pitfalls include emergency tax codes, unclaimed expenses, and ignoring the High-Income Child Benefit Charge.
→ HMRC cross-checks data from employers and platforms.
Advanced reliefs: pensions and Gift Aid can reduce taxable income significantly.
→ They also help preserve allowances and benefits.
VAT and CIS are specialist areas where errors are costly.
→ Register on time, file correctly, and reclaim over-deductions.
Professional advice pays for itself through refunds, peace of mind, and strategic tax savings.
→ Especially with MTD looming in 2026, digital compliance is non-negotiable.
FAQs
Q1: Can someone claim expenses for a mixed-use asset like a laptop used partly for personal and business tasks?
A1: Well, it’s worth noting that you can claim only the business portion of cost. In my experience advising graphic designers, I ask them to log actual hours used for client work versus leisure. If you use it half the time for profit, claim 50 %. Keep a simple spreadsheet—it really helps if HMRC ever asks.
Q2: Can someone continue to use the trading allowance when they also have a small amount of self-employed expenses?
A2: In my experience, the key is this: you either use the £1,000 trading allowance or you deduct actual expenses—but not both. A freelance writer I advised claimed £900 income and chose actual cost, which saved them more than the flat allowance. Always do the math.
Q3: Can someone offset losses from one self-employed activity against profits from another?
A3: Yes—but only if they’re tied to the same trade. For instance, a painter-turned-poet couldn't offset losses from poetry readings against decorating earnings. But if the same freelance writer has two book projects, losses in one can reduce tax on the other.
Q4: Can someone reverse-claim VAT input on a big purchase if they register voluntarily before filing?
A4: It’s doable, and I’ve done it for several small retailers. If you buy equipment and then register within four years, you can reclaim VAT back to the date of purchase—provided you have receipts. Just be sure the purchase was strictly for business use.
Q5: Can someone who sells through platforms like Etsy or Vinted be caught by HMRC even if they only sell personal items occasionally?
A5: Yes, platforms now share data. I had a Brighton client selling vintage bits; she thought pets' old toys were exempt, but once she crossed the £1,000 threshold, HMRC flagged her returns. Keep records, declare if needed—especially if selling regularly.
Q6: Can someone claim home office expenses if their household moves mid-year or they ship between two locations?
A6: It’s a common mix-up. I once guided a rural consultant who split time between parents’ and their own home. They applied two flat rates proportionally—straightforward, fair, and HMRC-proof. Just match hours to location neatly.
Q7: Can someone reduce the child benefit charge via pension contributions, and is it worth doing mid-year?
A7: Absolutely—it’s one of the cleanest moves. I advised a couple in Cardiff on this: a £2,500 pension top-up flipped them under the £50k threshold, saving both the tax charge and restoring eligibility. Timing matters—submit pension details early to HMRC to adjust coding swiftly.
Q8: Can someone with a short self-employed stint (e.g., summer tutoring) avoid registering?
A8: If your profit stays under £1,000 and you don’t already file Self Assessment, you might skip it. But I often ask clients to check if they have any other reason to be in SA—rental income, dividends, etc. Better to be sure than get a penalty.
Q9: Can someone amend a mistake on their Self Assessment more than 12 months after filing?
A9: Not usually—but I once had a client who’d mis-allocated CIS deductions, and we asked HMRC for a “reasonable excuse” beyond 12 months. They accepted it, adjusted the bill. It’s not standard, but worth trying if the mistake was genuine and small.
Q10: Can someone pay income tax via PAYE to avoid Self Assessment altogether if they also freelance occasionally?
A10: Sadly not. PAYE covers jobs, but freelancing must go into SA unless your side income is below the trading allowance and no other SA obligations exist. It’s a frequent misconception I encounter.
Q11: Can someone claim a trip abroad if part business, part leisure?
A11: Yes, but only the business bit. Divide costs reasonably—for example, one-third conference, two-thirds holiday. HMRC wants clarity; I’ve had clients pro-rata flights this way and sailed through checks.
Q12: Can someone use charitable donations under Gift Aid to reclaim the personal allowance if their income skirts the £100k taper?
A12: They can. I guided a client earning £101k to make a £1,500 Gift Aid donation, nudging them below the taper zone and restoring their allowance. That saved more than the donation cost—smart move.
Q13: Can someone split an asset sale across two tax years to reduce CGT?
A13: Indeed. For example, a landlord client sold a small plot in March causing higher CGT. We delayed sale to April, and it fell in the next tax year—halving the CGT bill due to re-set allowances. Timing is powerful.
Q14: Can someone offset business loan interest if the loan was partly used personally?
A14: Only the business-use portion counts. I ask clients to get loan statements and show how much went into the business bank account. It’s a bit tedious, but clear evidence gets you your rightful deduction.
Q15: Can someone switch accounting periods mid-year to align with MTD in April 2026, and claim data-transition relief?
A15: Yes. I’ve helped a design studio change their year-end to 5 April. HMRC lets you spread transitional profits over up to five years, easing the extra tax burden. It’s proactive planning at its best.
Q16: Can someone with both employed and self-employed income get a refund from HMRC if PAYE over-collected?
A16: Very often yes. I’ve seen PAYE take too much while Self Assessment owed less—and clients got refunds via SA. Check your payslips, run the manual tally, and HMRC can correct it.
Q17: Can someone wrongly classify commuting as business travel and still expect HMRC to accept?
A17: It’s a trap. A photographer client claimed mileage for daily commute to studio—HMRC rejected it outright. Only travel to temporary sites or client homes counts. Lesson: always think, “Would I get there if I didn’t work?”
Q18: Can someone reclaim CIS deductions if they overpaid because the contractor mis-classified them?
A18: Yes—especially if the contractor didn’t verify your status, leading to 30 % draw off. You claim it back on SA via the CIS statement. Handy if you get taxed too much by mistake.
Q19: Can someone use a single record-keeping app for both self-employed and PAYE income tracking to simplify filing?
A19: I encourage it when I can. Software like FreeAgent lets you tag work and salary separately—helped a café owner merge bookkeeping with PAYE top-up jobs. Makes SA much smoother at year-end.
Q20: Can someone with fluctuating income take advantage of annual allowances like CGT or dividend allowances more than once?
A20: No—those allowances reset yearly. But you can plan asset sales or dividend withdrawals to fall in each tax year, letting you use them both years. I helped a contractor schedule his trading platform withdrawals that way to maximise reliefs.
About the Author
Maz Zaheer, FCA, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Fellow Chartered Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible articles. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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