# Saving taxes: best tips for the self-employed What exactly can business owners and freelancers deduct from taxes? Do different rules apply to freelancers? We provide the most important tax tips for self-employed individuals and give an overview of which taxes apply. The information is up to date as of April 2025. ## 10 tips for saving tax when you are self-employed Reducing taxable profit and saving on taxes is crucial for freelancers and sole proprietors to maintain financial stability. Self-employed individuals in the UK benefit from a wide range of tax deductions, which can significantly reduce their tax bill. These include deductions for various business expenses, helping to minimize taxable income. Here’s a summary of key tax-saving tips for the self-employed: ### 1. Business Premises Expense If you run your business from home or rent a property for your business, you may be able to claim a number of tax deductions under **business premises expenses**. However, in the event of an HMRC audit, you must prove that the space is used exclusively and regularly for business purposes. Deductions are based on the percentage of your home used for business. If using the **cash basis accounting** method, you can claim simplified expenses, but if you use **traditional accounting**, you can claim capital allowances on certain business-related property expenses. ### 2. Telephone and internet expenses Similar to the home office tax deduction, you can deduct business phone and internet expenses. However, you can only claim the portion of the expenses that are used for business. It’s essential to keep a record of which calls or internet usage were for business purposes. You cannot claim the full cost unless the phone or internet connection is used exclusively for business. ### 3. Clothing expenses Clothing expenses are only deductible if the clothing is necessary for your work, such as uniforms, protective gear, or costumes for actors or entertainers. However, **everyday clothing** (even if worn for work) is not tax-deductible. ### 4. Staff expenses If you employ others, you can claim a variety of business-related expenses, including salaries, bonuses, pensions, benefits, agency fees, subcontractors, and [National Insurance](https://www.ionos.co.uk/digitalguide/startup/grow-your-business/national-insurance/) payments. These costs can significantly reduce your taxable income. ### 5. Subscription expenses You can claim the costs of subscriptions to professional journals, trade magazines, and memberships to business-related organisations that help improve your skills. However, personal subscriptions, like those to the gym or political memberships, are not deductible. ### 6. Meal and travel expenses Travel expenses, including train, bus, airfares, taxis, and accommodation for business trips, are deductible. Meal expenses, including those while travelling for business or entertaining clients, are generally 50% deductible. Keep receipts to prove that the meals are directly related to business activities. ### 7. Reselling goods expenses If you’re self-employed and purchase goods to sell, the cost of these goods, including raw materials and direct production costs, are tax-deductible. However, personal items or depreciation on assets cannot be deducted. ### 8. Car expenses You can claim for business-related car expenses such as insurance, repairs, fuel, parking, road tax, and breakdown cover. If you use your car for both business and personal purposes, you’ll need to calculate the percentage of business use. Alternatively, you can use the **HMRC standard mileage rate** instead of actual expenses to calculate your car costs. ### 9. Legal and financial costs You can deduct the costs of hiring legal and financial professionals, including accountants, solicitors, surveyors, and insurance premiums. These services must be related to your business. However, legal fees for purchasing property or assets, as well as any fines or penalties, cannot be claimed. ### 10. Advertising and promotion expenses Advertising and promotion costs are fully deductible if they directly help to promote your business. This includes print ads, online ads, business cards, brochures, website maintenance, and social media advertising. However, **event hospitality costs** (such as entertaining clients at events) are generally not deductible. ## Different forms of self-employment at a glance Freelancer, sole trader, or business owner? One of the most important questions when starting a business is understanding which category of self-employment you fall under. This is important because it determines which taxes you need to pay and how you can save money as a self-employed individual. This section explains the key differences between various forms of self-employment in the UK. ### Freelancer, sole trader, or business owner? - **Freelancer**: A freelancer is a self-employed person who works for multiple clients, usually without a long-term employment contract. Freelancers often take on short-term projects and are considered independent contractors by the IRS. - **Sole Trader**: A [sole trader](https://www.ionos.co.uk/digitalguide/startup/get-started/what-is-a-sole-trader/) is an individual who owns and operates an unincorporated business. This could involve selling goods or services for profit, either online or in physical locations. A sole trader is personally responsible for the business’s debts and liabilities. You must report your income and expenses on your annual **Self-Assessment tax return**. ## Taxes applicable to self-employed persons To save on taxes as a self-employed individual, it’s important to understand the types of taxes you may need to pay. Below is an overview of the most common tax categories for freelancers and sole traders in the UK: ### Income Tax Regardless of whether you’re self-employed or an employee, you must pay **[Income Tax](https://www.ionos.co.uk/digitalguide/startup/grow-your-business/income-tax/)** on your taxable profits. This is the main tax for the self-employed, and many business expenses can be deducted from your income to reduce your taxable profit. This tax is filed through **Self-Assessment**, and you will need to submit the **Self-Assessment form** to HMRC annually. ### National Insurance Contributions (NICs) Self-employed individuals must contribute to **National Insurance** (NI) to qualify for benefits like state pension, maternity allowance, and more. The contributions are split into: - **Class 2 NICs**: For those with profits above £6,475 per year. - **Class 4 NICs**: For those with profits above £9,568 per year. These contributions are filed along with your income tax return through the **Self-Assessment** process. ### Value Added Tax (VAT) As a self-employed person, you may need to register for **[VAT](https://www.ionos.co.uk/digitalguide/startup/grow-your-business/value-added-tax-vat/)** if your business’s taxable turnover exceeds **£85,000** in a 12-month period. VAT allows you to charge customers VAT on the goods or services you sell, which is paid to HMRC. The standard VAT rate is 20%, but some items are exempt or subject to reduced rates. If you’re eligible, you must submit quarterly VAT returns using **[Form VAT1](https://baxterco.co.uk/wp-content/uploads/2017/11/VAT1-Application-for-registration.pdf "Value Added Tax (VAT) Application for registration")**. Note If your taxable turnover is below £85,000, you’re not required to register for VAT but may do so voluntarily. More details on VAT registration and rates can be found on the [GOV.UK VAT registration page](https://www.gov.uk/vat-registration/when-to-register "GOV.UK: Register for VAT"). ### Information returns As a self-employed person, you must submit supporting documents for all tax filings to HMRC. HMRC will review the documents you’ve submitted to verify that all income and expenses have been properly accounted for. This ensures that your tax return is accurate and complete. Please refer to the [legal disclaimer](https://www.ionos.co.uk/digitalguide/startup/disclaimer/) for this article. This is a markdown version of: [https://www.ionos.co.uk/digitalguide/startup/grow-your-business/tax-tips-for-the-self-employed/](https://www.ionos.co.uk/digitalguide/startup/grow-your-business/tax-tips-for-the-self-employed/) for AI/LLM consumption.