A non-deductible expense is an expense that you can’t subtract from your income when you’re doing your Self Assessment tax return. 

In simpler terms, you can’t use it to reduce your tax bill. Usually, it’s fairly straightforward what classes as a business expense, and what doesn’t, but the line is not always so black and white.

How to know if your expenses are non-deductible

One of the benefits of being self-employed is that you can deduct certain business expenses from your overall tax bill. However, it’s not always obvious which expenses are deductible and which are non-deductible. Plus, HMRC is very strict on what is classed as an allowable expense. 

The general rule of thumb is that it must be incurred ‘wholly, exclusively and necessarily’ in the performance of your business. This means that you have to be able to prove that it’s a business expense so you can deduct it from your tax return.

What are some examples of non-deductible expenses?

To give you an idea of what you can and can’t claim as an expense on your tax return, take a look at the list below. First, here are some examples of non-deductible expenses:

• Meals and drinks for yourself
• Client entertainment, such as dinner, coffee or drinks. You can however, claim on entertainment expenses for your employees if you run a limited company
• Customer gifts
• Donations (unless they’re contributed via Gift Aid)
• Legal fees related to the issue of share capital, or matters of capital items (equipment or  property)
• Fines and penalties
• The cost of buying a car (unless it qualifies for capital allowances)
• Travel costs between home and workplace

How to work out the deductible amount of an expense:

Some things you use for your business, such as a mobile phone, you might also use for personal use. That’s why you may have to work out the part of that item that is a non-deductible expense. For example:

• Let’s say that you bought a laptop for your self-employed work
• But you’re also using it for your own personal use about 50% of the time
• The ‘personal use’ is considered non-deductible, and therefore, you can only claim 50% of the cost in your Self Assessment tax return