Deductible Expenses for the Self-Employed: What the Tax Agency Accepts — and What Can Sink You in an Audit

One of the biggest headaches for any self-employed professional or small business is knowing, without doubt, which expenses can go on the tax return and which ones will trigger a request for information from the Tax Agency. The rules start from a simple principle — an expense must be tied to the economic activity and necessary to generate income — but applying it gets complicated in three classic areas: the home when working remotely, the vehicle, and per diems. On top of that, the Tax Agency and the courts have been refining their criteria in recent years, which means the way each item is justified needs to be kept up to date.

The business-use test: the foundation of it all

For an expense to be deductible under personal income tax (or corporate tax, with some nuances), it must meet three requirements that the Tax Agency always checks in the same order: it must be linked to the economic activity, it must be properly recorded in the accounts or official ledgers, and it must be backed by a full invoice — a receipt or simple ticket is not enough. The general rule for mixed-use assets — a computer, a vehicle, a home — is “exclusive business use”: if the asset isn’t used 100% for the activity, deducting a partial amount generally isn’t allowed, except for the specific exceptions the law itself sets out for vehicles, home utilities, and little else. This is where most audits are lost — not from overspending, but from being unable to prove that an expense is strictly professional.

Utilities and remote work, vehicles, and per diems

If you work from home and have declared it as partially used for business (stating the square meters on the census form), you can deduct a proportional share of utilities such as electricity, water, gas, phone, and internet. The criterion set by the Directorate-General for Taxation applies a reduced percentage to the share that the business-use square meters represent of the total home, precisely to reflect that those utilities are also consumed outside working hours. It’s worth keeping invoices in your own name and, where possible, a breakdown or reasonable justification of use, since this is one of the items most frequently scrutinized.

With vehicles, personal income tax generally requires exclusive business use except for very specific activities (passenger or goods transport, driving schools, sales reps, taxi drivers, etc.), which rules out most self-employed workers who use their car “also” for work. VAT works differently: there’s a legal presumption of 50% business use for passenger cars, which can be raised by proving greater professional use (mileage logs, visit schedules, signage, etc.) or lowered by the Tax Agency if it detects significant personal use. Related costs — fuel, insurance, repairs — follow the same percentage applied to the vehicle.

Meal per diems are deductible when the trip is justified by the business activity, paid through traceable electronic means (never cash), and kept within the tax-exempt limits set by the Personal Income Tax Regulations for employees, which also apply to the self-employed. In their most recent rulings, the Supreme Court and the Central Economic-Administrative Tribunal (TEAC) have stressed that the restaurant invoice alone isn’t enough: you need to be able to prove the place and purpose of the trip (schedule, client visited, project) for the tax authorities to accept it without dispute.

Taken together, the most recent case law points in a clear direction: less tolerance for “automatic” deductions and higher documentary demands on the cause-and-effect link between the expense and the activity. It’s not that deductible expenses have changed — it’s the level of proof now expected from the self-employed.

At Zythos Business, we support self-employed professionals and small businesses every quarter precisely on this front: we review which expenses are properly supported, flag the ones with weak justification before a request for information arrives, and document the business-use criteria — home, vehicle, per diems — so they hold up under an audit. Fewer surprises with the Tax Agency, more peace of mind to focus on the business.