Self-employment is an increasingly popular choice for professionals in the UK. It can provide several benefits including flexible working, independence and potentially higher earning opportunities. However, managing your own employment and income comes with added responsibilities and liability. You will be responsible for managing every aspect of your operation, including accounting and completing your self-assessment tax return. This is a relatively technical and often daunting process if you haven’t done it before.

From a very basic standpoint, you have to declare your income and outgoings relating to your self-employment, which will result in an income tax bill that you’ll need to pay. Outgoings refer to the costs or expenses that you incur in generating and sustaining your self-employment income, and these are subtracted from your taxable income or profit. It’s important to understand which sort of expenses you can claim and which you can’t. We explore this further below.

Stock, Raw Materials or Direct Costs

The main cost that you will be able to claim is the money you spend directly on creating or supplying your product or service. This can be anything from raw materials to ready-made stock and supplier payments. These are likely to be your most significant expense, but they are usually pivotal to your operation. For example, if you’re an artist, your direct costs will be the money you spend on canvases, paint and any other materials you use.

Equipment, Operational or Indirect Costs

Indirect costs can be another significant expense for self-employed workers. These include anything that is indirectly contributing to your income and helping you to manage or achieve operations. For a self-employed mechanic, for example, this might include tools such as torque wrenches or work clothing. Others may invest in advertising or marketing activities to spread the word about their product or service. Maintenance or repairs to equipment can also detract from your profit, so ensure you claim this to reduce your taxable income.

Office or Workspace Costs

You can claim the cost of your workspace or business premises if you are self-employed. This might be the cost of rent if you work in a commercial office space or workshop. If you work from home, you can claim a proportion of your utility bills, council tax and other property-related expenses – but only relative to the amount of space you use for work purposes.

Travel Costs

If you need to travel for your self-employment, keep receipts of all your expenses relating to this process too. Car or van insurance, public transport tickets, servicing, fuel, accommodation and parking are all viable business expenses – so long as you are travelling for business reasons and not for leisure. Commuting to and from your place of work can’t be claimed as an expense because that is still seen as a personal trip.

There are a few more types of costs and specific expenses that you can claim if you’re self-employed, but those above are just to get you started and give you a better understanding before you file your first tax return. Nowadays, tax returns can be filled in and submitted online which is a great help, and there are plenty of online resources to help guide you through the process. Good luck!