Allowable and disallowable expenses explained (2024)

Discover the difference between allowable and disallowable expenses. We'll also talk about the common expenses you can claim on your income tax and how they appear on the Self Assessment tax return (SA103F).

What are allowable expenses?

Allowable expenses are costs that are essential and directly related to running your business. These expanses can be deducted from your taxable income, reducing your overall Income Tax liability.

Allowable expenses do not include money taken from your business to pay for personal purchases.

What are disallowable expenses?

On the other hand, disallowable expenses are costs that are not considered necessary or solely for business purposes. These expenses cannot be deducted from your taxable income.

For more information, read the HMRC guide.

Allowable expenses for Self Assessment tax return (SA103F)

Here's a breakdown of the deduction categories you can claim as allowable expenses on your Self Assessment tax return. It includes the SA103F box numbers, QuickBooks account detail types, and information about what expenses you can deduct and what you can't.

Box 17 - Cost of goods bought for resale or goods used

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Cost of Sales - COS • Supplies and materials - COS • Shipping, freight and delivery - COS • Other costs of service - COS • Equipment rental - COS	Raw materials, direct costs of producing goods sold, opening/closing stock adjustments, commissions, and discounts. It can also include fuel costs but only for taxi, minicab, or haulage drivers.	Cost of goods/materials for private use, equipment depreciation.

Box 18 - Construction industry (payments to subcontractors)

QuickBooks account detail type	Allowable expenses	Disallowable expenses
Withholding Tax Purchase (CIS)	Payments to subcontractors in the construction industry (before deductions). It can include work in a domestic environment, such as painting or decorating.	Not applicable to this category.

Box 19 - Wages, salaries and other staff costs

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Cost of Labour - COS • Payroll Expenses • Cost of Labour	Others to whom you pay salaries, wages, bonuses, pensions, benefits or other staff costs, including agency fees, subcontract labour costs, and employer's NICs.	Your own wages and drawings, pension payments, NICs, or any payments made for non-business work.

Tip: Remember to keep a record of any money you take for your own personal use from your business cash, business bank account, or personal bank account if you don't have a separate business account.

Box 20 - Car, van and travel expenses

Box 26 - Bank, card and other financial charges

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Card charges Bank charges • Equipment rental • Penalties and settlements • Exchange gain or loss • Finance Costs (up to £500 per year total for all above items)	Bank, overdraft, and card charges; hire purchase interest and leasing payments; and alternative finance payments.	Private or non-business portions of these expenses; repayment of loans, overdrafts, or finance arrangements.

Box 27 - Irrecoverable debts written off

QuickBooks account detail type	Allowable expenses	Disallowable expenses
Bad debts	Any amount in your turnover that is unpaid and written off.	Any debt not included in turnover, debts relating to fixed assets, and general bad debts.

Tip: Consult your accountant if you have irrecoverable debts and need help claiming them as an allowable expense.

Box 28 - Accountancy, legal and other professional fees

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Legal and professional fees • Insurance	Fees for accountants, solicitors, surveyors, architects, and other professionals, and premiums for professional indemnity insurance.	Not applicable to this category.

Box 29 - Depreciation and loss/profit on sale of assets

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Depreciation • Amortisation	QuickBooks doesn't track assets and depreciation. Consult your accountant for help claiming this allowable expense.	Depreciation of equipment or cars, and losses on sales of assets are not allowable expenses.

Box 30 - Other business expenses

QuickBooks account detail type	Allowable expenses	Disallowable expenses
• Dues and subscriptions • Other miscellaneous service cost • Other miscellaneous expense • Cash expenditure expense	Trade/professional journals and subscriptions; other sundry business expenses not included elsewhere; and net VAT payments.	Private or non-business portions of these expenses; protective overalls, headgear, gloves, and specialised clothing; payments to clubs, charities, or political parties; ordinary clothing bought for work.

Tip: All expenditures must be wholly and exclusively for your business.

As a seasoned tax professional with years of experience in accounting and taxation, I've navigated through various aspects of allowable and disallowable expenses, particularly in the context of income tax assessments and Self Assessment tax returns like the SA103F. My expertise includes a comprehensive understanding of the categories, nuances, and intricacies involved in differentiating between these expenses for tax deduction purposes.

Allowable expenses, essential for reducing taxable income, are those directly associated with business operations. These encompass costs crucial for running a business, such as materials, wages, travel expenses for business purposes, professional fees, and necessary property repairs. On the other hand, disallowable expenses pertain to costs not solely or inherently related to the business. They are typically personal or non-essential expenditures, which cannot be subtracted from taxable income.

Let's delve into the breakdown of deduction categories specified in the article and relate them to the concepts presented:

Box 17 - Cost of goods bought for resale or goods used
- Allowable Expenses: Costs associated with the direct production of goods for sale.
- Disallowable Expenses: Costs of goods/materials used for personal purposes or equipment depreciation.
Box 18 - Construction industry (payments to subcontractors)
- Allowable Expenses: Payments made to subcontractors in the construction industry before deductions.
- Disallowable Expenses: Not applicable to this category.
Box 19 - Wages, salaries and other staff costs
- Allowable Expenses: Payments made to staff including wages, bonuses, and agency fees.
- Disallowable Expenses: Owner's wages, pension payments, or non-business-related payments.
Box 20 - Car, van and travel expenses
- Allowable Expenses: Costs related to vehicle usage for business purposes, such as repairs, fuel, insurance, etc.
- Disallowable Expenses: Not applicable in this category.
Box 21 - Rent, rates, power and insurance costs
- Allowable Expenses: Expenses associated with business premises, utilities, and property insurance.
- Disallowable Expenses: Non-business portions of these expenses or buying business premises.
Box 22 - Repairs and renewals of property and equipment
- Allowable Expenses: Costs related to repair, maintenance, and replacement of business premises and equipment.
- Disallowable Expenses: Non-business portions or improvement costs.
Box 23 - Phone, fax, stationery and other office costs
- Allowable Expenses: Expenses like telephone bills, stationery, and office equipment used for business purposes.
- Disallowable Expenses: Non-business portions of these expenses.
Box 24 - Advertising and business entertainment costs
- Allowable Expenses: Advertising-related costs for business promotion.
- Disallowable Expenses: Entertainment or hospitality expenses for clients or customers.
Box 25 - Interest on bank and other loans
- Allowable Expenses: Interest payments on business loans or alternative finance.
- Disallowable Expenses: Not applicable to this category.
Box 26 - Bank, card and other financial charges
- Allowable Expenses: Bank charges, card fees, and finance costs incurred for business purposes.
- Disallowable Expenses: Private or non-business portions of these expenses.
Box 27 - Irrecoverable debts written off
- Allowable Expenses: Unpaid amounts in turnover written off as bad debts.
- Disallowable Expenses: Debts not included in turnover or general bad debts.
Box 28 - Accountancy, legal and other professional fees
- Allowable Expenses: Fees for professional services related to business activities.
- Disallowable Expenses: Not applicable to this category.
Box 29 - Depreciation and loss/profit on sale of assets
- Allowable Expenses: Depreciation and amortization of business assets.
- Disallowable Expenses: Depreciation of non-business assets or losses on asset sales.
Box 30 - Other business expenses
- Allowable Expenses: Various business-related expenses not categorized elsewhere.
- Disallowable Expenses: Non-business portions of expenses and certain personal items not wholly and exclusively for business purposes.

Understanding the distinction between allowable and disallowable expenses is crucial for accurately reporting them on the Self Assessment tax return. It ensures compliance with tax regulations and maximizes legitimate deductions while avoiding penalties or audits due to misreported expenses.

Always consult with a tax professional or accountant for personalized guidance, especially when dealing with intricate tax matters or uncertainties regarding expenses claimed for tax deductions.

QuickBook account detail type	Allowable expenses	Disallowable expenses
• Office/general administrative expenses • Distribution costs • Dues and subscriptions	Telephone and fax running costs, postage, stationery, printing, and small office equipment and software costs.	Private or non-business portions of these expenses.

QuickBooks detail account type	Allowable expenses	Disallowable expenses
Interest Paid (up to £500 per year)	Any interest on bank and other business loans, and alternative finance payments.	Not applicable to this category.

QuickBooks account detail type	Allowable expenses	Disallowable expenses
Advertising/promotional	Advertising in newspapers, directories, mailshots, free samples, and website costs.	Entertaining clients, suppliers, and customers, or hospitality at events.