What is Allowable Expenses? UK Definition 2026/27
Quick Answer
Business costs you can deduct from your income to reduce your tax bill.
Definition of Allowable Expenses
Allowable expenses are legitimate business costs that HMRC permits you to deduct from your taxable income, reducing the amount of tax you pay. These expenses must be "wholly and exclusively" for business purposes.
For self-employed individuals and businesses, allowable expenses include office costs (stationery, phone bills), travel costs (fuel, parking, public transport for business trips), clothing expenses (uniforms, protective clothing), staff costs (salaries, pensions), stock and materials, financial costs (bank charges, interest on business loans), premises costs (rent, utilities, insurance), and professional fees (accountant, solicitor).
The key principle is that the expense must be incurred in the course of running your business. Personal expenses or items with dual personal/business use require careful apportionment.
Allowable Expenses — Key Facts for 2026/27
| Trading Allowance | £1,000 |
| Simplified Expenses | Available for vehicles, home office, living at business premises |
| Capital Allowances | For equipment and vehicles |
| AIA Limit 2026/27 | £1,000,000 |
How Allowable Expenses Works — Example
- 1Annual income: £45,000
- 2Allowable expenses: Office rent £6,000 + Equipment £2,000 + Software £1,200 + Travel £800 = £10,000
- 3Taxable profit: £45,000 - £10,000 = £35,000
- 4Tax saving at 20% basic rate: £10,000 × 20% = £2,000 saved
How Allowable Expenses Affects Your Tax
Claiming all legitimate allowable expenses reduces your taxable profit, which directly lowers your income tax and National Insurance bills. Self-employed individuals pay Class 2 and Class 4 NI on profits, so reducing profits also reduces NI contributions. Keep receipts and records for at least 5 years.
Official HMRC Guidance on Allowable Expenses
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Expenses if you're self-employedFrequently Asked Questions about Allowable Expenses
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.