The idea of claiming expenses as a freelancer may be new to many beginners. But it’s an important concept to keep your head around because there are a lot of things you can claim. In other words, ways you can (legally) save some money when it comes to paying your taxes.
In this guide I discuss everything you can and cannot claim as business expenses if you are a freelancer. I will also discuss how to actually claim those costs.
Remark: As always, this is for educational purposes only and does not constitute legal or financial advice. If you are unsure about anything, consult a professional. This list of expenses is aimed at UK-based freelancers. You can read more about this on the Gov.UK website.
What counts as business expenses for freelancers?
As a freelancer, you can only claim ‘allowable’ costs that are reasonable, not excessive and relevant to your business. Below I have outlined the different categories of allowable operating expenses, along with some examples of each category.
The general rule of thumb is that if you use the thing you paid for as part of your business, then it’s yours be able to can claim as costs. If you haven’t used it for your business, or if it’s mainly personal use you get out of it, then probably yes can’t claim it as an expense. This is where it really helps to get a professional opinion if you’re unsure!
Costs for office supplies and equipment
Office-related costs that freelancers can claim include:
- Stationery
- Port
- Phone and internet bills (if used for the business)
- Computer software (this may have specific rules depending on where you live)
Business premises costs
If you work in an office, you may also be entitled to:
- Rent
- Utility bills
- Property insurance
- Security
If you work from home (as many freelancers do), there are some specifics you should be aware of. I’ll deal with that later.
Travel and vehicle costs
You can claim the following travel and vehicle costs:
- Accommodation for business trips
- Meals for overnight business trips
- Fuel
- Repairs and maintenance
- Insurance
- Roadside assistance
- Parking and tolls
- Mileage (this is often limited)
- Taxi, bus, train and plane fares
- The costs of purchasing a bicycle and maintenance costs
Marketing costs
As a freelancer you can also claim various marketing costs:
- Website costs, such as creating and hosting the website
- Business website domain and setting up a business email address
- Paid ad placement (online or offline)
Business insurance costs
You can claim insurance costs such as:
- Insurance for commercial properties
- Professional liability insurance
- Civil liability insurance
Financial and legal costs
Financial and legal costs that you can claim include:
- Accounting costs (including freelance accounting software if you use it)
- Legal costs
- Bank charges or credit card charges (for accounts in the company’s name:not your personal one)
- Interest on corporate and bank loans
Professional subscriptions and training costs
As a freelancer, you should always be looking to improve your skills. Fortunately, if you pay to participate in courses or subscriptions to help you do this, you can claim many of these as business expenses, including:
- Membership fees of any professional organization with which you are required to register (as recognized by HMRC)
- Annual subscriptions to trade or professional magazines
- Training directly related to what your business does (if you are retraining in another field you cannot claim the course as a business expense)
Personnel costs
If you hire other people, even as a freelancer, you can claim:
- Salaries
- Pensions & benefits
- Bonuses
- National insurance employer
- Uniforms
- Course
Whether you can claim some of these as expenses and how you do this may vary depending on how you do your bookkeeping. In the UK some things vary depending on whether you use cash accounting, and you can read more about that on the website Gov.uk website.
Freelance business expenses for those who work from home
If you’re a self-employed freelancer who works from home, you use your home and services, such as the Internet, for both personal and professional purposes. You need to figure out what part of these services you use for business purposes.
Remark: You need to be careful with this because it’s easy to claim something you shouldn’t be claiming for. It also often provides little benefit if the numbers are very small, but it can add to your accounting headaches. So carefully consider every possible expense and whether it is worth filing a claim.
Freelancers who work from home can usually claim part of the following costs in addition to any purely business costs:
- Rental or mortgage interest
- Utility bills including electricity and heating
- Telephone line rental
- Broadband
- Contents insurance
- Household repairs (except repairs that only affect a part of the home that you do not use for business)
Examples of costs for freelance work from home
Let’s look at some examples. If your home Wi-Fi costs €25 per month and you calculate that you use it 40% of the time for business purposes, you can claim €10 per month (40% of €25) as a business expense.
If your electricity bill is €300 per year and you have three rooms in your apartment, one of which you use exclusively as an office you can declare €100 per year in electricity as business expenses (€300 divided by 3).
Instead of doing complicated calculations every year, you may be able to use simplified expenses to claim business-related expenses while working from home.
Simplified expenses
If you live in the UK and work from home at least 25 hours a week, you may be able to take advantage of this simplified expenses instead of having to calculate the actual costs. Simplified expenses use a flat rate to calculate reimbursement for mixed personal and business expenses.
The current simplified expense amounts that you can claim for the costs of working from home are:
Hours of business use/month | Fixed rate/month |
| 25-50 | £10 |
| 51-100 | £18 |
| 101+ | £26 |
It’s worth checking whether using simplified spending is the best approach for your circumstances (you can do this on the Gov.uk website). While it will save you time (and therefore money) preparing your tax return, figuring out your actual costs may save you more money in the long run.
Which costs can you NOT claim as a freelancer?
As a freelancer you cannot claim the following as business expenses:
- The costs of travel between home and your workplace (you may be able to claim costs for travel to clients)
- Entertaining customers (there may be exceptions to this)
- Buying business premises (you may be able to deduct rental costs)
- Gym memberships
- Charitable donations
- Childcare costs (other tax credits may be available)
- Pension payments (other tax credits may be available)
- Parking fines for a company car
It can be difficult to know exactly what you can and cannot claim when filing your taxes, especially when some of the items on the list above appear to be closely related to allowable expenses.
If you are unsure, it is best to contact the HMRC self-assessment helpline to confirm whether or not something is an allowable expense if you are in the UK. For those in the US, consider using the IRS website.
Example of Freelance Costs
Suppose your annual revenue is $35,000 and you calculate that your allowable annual operating expenses are $3,000, which you will spend on software and a computer for your business.
The tax authorities will then calculate your tax on € 32,000 (revenues minus costs), instead of € 35,000. If we imagine a tax rate of 25%, you would pay £8,000 in taxes. So you ‘spend’ a total of €11,000 (€8,000 in taxes + €3,000 in expenses).
While you won’t come away with more money in your pocket if you pay taxes, you will have done so used of more of your money than you would if you had no business expenses. We call this tax relief.
How does that work?
If you did not declare the €3,000 you spent on the computer and software as expenses, you will pay 25% tax on €35,000, or €8,750. But you still paid for the equipment, and now you also pay $750 more in taxes for that year. So instead of paying €11,000 for the costs plus your tax, you pay €11,750.
This is one very simplified example, but it should hopefully illustrate how to declare expenses:when legally permitted– can help you “save” money when it comes time to pay taxes.
Staying legal as a freelancer
That “when legally permitted” part is critical here. Don’t think that you can simply declare everything as an expense and pay less tax. As a freelancer, you can only claim certain things as business expenses, many of which I will describe below.
How to claim business expenses as a freelancer
To claim your business expenses as a freelancer, you must first track your expenses over the course of the tax year. You can use accounting software to do this, but you can also do this manually using a spreadsheet. Alternatively, you can also hire an accountant to help you with this.
When you file your taxes, there is a section where you can add information about your business expenses. Depending on your circumstances, the tax authorities may ask you to simply add your total expenses or an itemized list.
Even if you use simplified expenses (in the UK), you must keep track of all your business expenses for six years in the UK and three years in the US. This includes receipts, statements, invoices, mileage, etc.
When it comes to tax-related matters, it is a good idea to seek professional advice relevant to your circumstances. There’s a lot to gain and lose by doing things right or wrong, so I really recommend learning as much as you can. After all, running a freelance business is partly about freelancing, but also partly about the business itself!
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Kate is an Australian freelance writer now living in Europe. She has contributed to Freelance Ready as a writer and editor, using her legal background to write about the regulatory and financial aspects of freelancing. She is also an expert at finding the best flat white within a 5km radius! Read more about Kate here.
