Deductible Expenses for the Self-Employed: What the Tax Authority Accepts and What It Will Reject

Deducting expenses is one of the most powerful levers for reducing a self-employed person’s income tax (IRPF), but it is also one of the biggest sources of problems during a tax audit. The underlying rule is simple to state and hard to apply: an expense is deductible only if it is necessary to earn the income of the business activity, properly supported by documentation, and recorded in the accounts or the mandatory books.

The three requirements the tax authority always checks

Before going into specific categories, it is worth being clear about the filter the tax authority applies to every expense:

1. Link to the business activity. The expense must be tied to the economic activity. A mixed expense, for both personal and business use, cannot be deducted in full unless the rules expressly allow it.

2. Supporting documentation. You need a complete invoice issued in the name of the person carrying out the activity. Simplified receipts are only valid in the cases the rules allow and with the required details. An invoice in a third party’s name, or one missing the mandatory data, is the most common reason for rejection.

3. Accounting record. The expense must appear in the record books and be allocated to the period in which it accrues. An expense that is not in the books is hard to rescue afterwards.

Home-office utilities, vehicle and meals

Home utilities. If you work from home, the law allows you to deduct part of your utilities (electricity, water, gas, phone, internet) under the direct estimation method, in proportion to the square metres of the home used for the business over the total, and then applying a further 30% to that proportion. The home must be owned or rented by you, the space must genuinely be used for the business, and the invoices must be in your name. A simple example: in a 100 m² home with a 10 m² office, the proportion is 10%; applying 30% to that 10% means you can deduct 3% of the utilities. If the office is also your registered business address and you meet clients there, it is advisable to document that.

Vehicle. This is where the tax authority argues the most. As a general rule, a passenger car is presumed to be for mixed use and is not accepted as a deductible expense, except in specific activities such as goods transport, driving schools, sales representatives or taxis, among others set out in the rules, where the vehicle is considered business-related. Outside those cases, exclusive business use is very hard to prove, and having another vehicle for private use helps but does not by itself guarantee anything. Expect the tax authority to reject depreciation, fuel and maintenance if it sees no solid evidence. For VAT, the general deduction on passenger cars is limited to 50%, unless a higher business use can be proven.

Meals and subsistence. The self-employed person’s own subsistence costs are deductible within the daily limits set by the regulations, provided they are incurred in restaurants or hospitality establishments and paid by electronic means. The amount varies depending on whether the expense is in Spain or abroad and whether there is an overnight stay. An ordinary meal in your home town, with no travel and no clear connection to the business, rarely survives a review.

Mistakes that tend to sink an expense

Administrative doctrine and recent case law point in the same direction: the burden of proof lies with the taxpayer, and simply booking the expense is not enough. The most frequent slip-ups are:

Disguised personal expenses. Clothing, gym memberships, leisure, family meals or supermarket shopping with no demonstrable link to the business. The courts reject them regularly.

Invoices missing requirements. No tax ID, an insufficient description, issued in another person’s name, or with a generic description.

Cash payments above the legal limit. Anti-fraud rules restrict cash payments in transactions between businesses; exceeding the threshold can lead to penalties, regardless of whether the expense is deductible.

Inconsistency between VAT and IRPF. Deducting the VAT on an expense but not the expense itself for IRPF, or the other way round, invites an audit.

A practical tip: always keep the supporting material that explains why you incurred the expense, such as an email, a quote or a travel diary. When the link to the business is not obvious, that extra evidence is often what makes the difference.

The rules are updated and the authority’s criteria evolve, so it is wise to double-check every doubtful case before deducting it.

At Zythos Business we work with our self-employed and SME clients to review which expenses are deductible, how to document them and how to record them so that the accounts stand up to an audit. This upfront review avoids reassessments, surcharges and unpleasant surprises when a formal request arrives, and lets you confidently take full advantage of everything the law does allow you to deduct.