If you are a sole trader or self-employed, then you will have costs of both setting up and running your business. You are able to claim expenses for the running of your business and this will reduce your income tax bill.
There are a wide range of business expenses you can claim out of your taxable profit as a sole trader or self-employed individual and it is important that you claim all allowable expenses in order to reduce your tax bill and keep more of your earnings.
In this blog we will cover the expenses you can claim.
Income tax relief: How you can reduce your tax by claiming on business expenses
When you’re a self-employed sole trader you pay income tax on your taxable profits. By claiming the right allowable business expenses, you will reduce the profit you earn and thereby reduce your income tax bill. Put simply, the more allowable expenses you claim, the less income tax you pay.
How do I keep a record of my sole trader business expenses?
You are legally bound to keep records for six years to account correctly for your business expenses, you will need to keep accurate records and receipts or invoices of everything you are claiming. This will be required for your self-assessment tax return and if HMRC launch an enquiry into your expenses.
What business expenses can I claim as a sole trader?
The general rule set by HMRC are that you can only claim for expenses which are ‘wholly and exclusively’ incurred for business use or in the performance of your business duties.
If you attempt to claim for something that you use for both personal and business use, it is unlikely to be accepted by HMRC as these expenses were likely to be incurred anyway. A great example of this is a mobile phone you use for both personal use and business use. If the contract is in your name and you only use it 50% for business, then youll only be able to claim 50% of any bills. Proving that you only use it 50% for personal use will be very difficult to evidence to HMRC. It would be better if the mobile phone contract is in the name of your business and not your personal name.
It is worth noting that as a sole trader or self-employed person, you can claim less types of expenses than if you were running a limited company. Limited company expenses are much more wide ranging. Find out more in our limited company expense guide here.
See more detail below on the exact things you can claim as a self-employed sole trader.
You can calculate some expenses you claim at a flat rate, instead of working out complex splits of expenses. Examples of these are working from home costs and for some vehicles. See more about the flat rates for these below.
Use HMRC simplified expenses checker to find out what you can claim in this way.
Fees incurred to use your accountant for filing things like your tax return, online accounting software or tax advice can be claimed. See the costs of dns sole trader business packages here.
Accommodation costs when you are undertaking business trips are tax deductible. These costs need to be reasonable and not excessive. i.e. a 5 star hotel will likely be seen as excessive!
Bank charges, credit card costs, and other financial charges
It is always worthwhile as a sole trader that you have a separate bank account for business purposes. You can claim expenses for costs on the following:
- overdraft charges
- bank and business loans costs
- credit card charges (better if cards are in the name of your business)
- lease payments
- hire purchase and alternative finance payments.
You SHOULD NOT claim for any personal overdrafts, loans or other personal financial costs.
In the course of running a sole trader business, you may have to take out insurance such as public liability insurance or professional indemnity insurance. The costs of these will be an allowable expense and can be claimed.
Business rent and rates
If you use a separate business premises, then you can claim the following costs:
- business rent
- business rates
- water rates
- utility bills (electricity, gas etc.)
- property insurance
- security costs
If you are looking to buy a business premises, then you may be better switching to a limited company from a sole trader as there are many more ways to tax efficiently buy and run a business premises as a limited company and be able to claim things like capital allowances.
If you use your home as a home/office, then see home office section below.
Car and vehicle costs
You cannot claim or own a company car as a sole trader. We recommend you claim business mileage when using your car for business purposes. You could claim a proportion of the full running costs, such as insurance, repairs and servicing with your personal use percentage deducted. However, this is complex and it is often easier to claim just the mileage rates (see under mileage allowance below) as these rates are designed to cover such running costs as well as fuel.
Sole traders do not get tax relief for charitable donations as it will be seen as you personally donating the money.
However, if you donate via Gift Aid the receiving charity can receive 25p tax relief for every £1 that you donate. If you’re a higher rate taxpayer, you can claim back the difference between the tax you pay and the basic rate for the value of your donations. If you donate £100, you can claim back £25.
Childcare costs and expenses
HMRC does not allow childcare as a business expense. However, sole traders can claim tax relief through the tax-free childcare scheme.
Employee expenses you can claim
If you are a sole trader, you are classed as self-employed and not an employee (as you dont run a limited company). However, you can take on employees as a sole trader.
For sole traders with employees, you can claim the following staff costs:
- pension costs
- employers National Insurance contributions
- training costs
- recruitment agency fees
- subcontractor fees
It is often better to switch to a limited company if you employ numerous people. There are many advantages of setting up a limited company. Read more about the transition from sole trader to limited company here.
Equipment and office furniture
You are able to claim costs of things like computers, printers and software. You can claim tax relief for furnishing a business office and office equipment such as desks, chairs, bookcases, filing cabinets, photocopiers, scanners etc.
Eyesight test and glasses
You can only claim these if they are necessary for use of visual display equipment.
Home office costs and working at home expenses
If you run your business from your home, you can claim this as allowable expenses for the business.
There are two options to claim working from home expenses as follows:
This method uses a flat rate based on the hours you work from home each month. The flat rate doesn’t include telephone or internet expenses.
The flat rates are as follows:
25 to 50 hours of business use per month: £10 per month
51 to 100 hours of business use per month: £18 per month
101 or more hours of business use per month: £26 per month
This method is much more complex. You can work out your actual costs by calculating the proportion of personal and business use for your home, i.e., how much of your utility bills are for business and the number of rooms you use.
Legal and professional fees
You can claim allowable expenses for legal costs of lawyers and other professional fees for advisors.
Marketing, PR and advertising
Marketing and advertising your business and services is important to generate income and new business. Whether its a one-off cost such as designing and building a website, directory entries or ongoing fees for marketing costs such as networking events, consultancy and design costs or advertising costs, these can all be claimed as allowable business expenses.
If you use your personal vehicle/car for business travel, you can claim a mileage allowance as follows:
|Vehicle||Rate Per Mile (On first 10,000 miles in tax year)||Rate Per Mile (On each mile over 10,000 miles)|
|Cars and vans||45p||25p|
You cannot claim pension contributions as they are not an allowable expense. However, you can claim personal pension tax relief for your own personal pension contributions.
Phone, broadband and mobile phone costs
If you’re using a home or mobile phone line for both business and personal calls, you cannot claim for line rental because the expenses aren’t exclusively for business purposes. However, you can claim a business proportion of these expenses for the business phone calls made via these lines, provided they can be identified on the bill. This is the same approach for broadband costs.
You could set up a separate phone line or mobile contract in the name of the business which is used 100% for business.
If you are a member of a trade body or professional organisation membership fees required to enable you to trade are allowable. However, they need to be provided by approved professional bodies, you can check HMRC approved professional bodies here.
Stationery, and other office consumables
Any minor purchases that are used wholly and exclusively for the business are claimable. This includes postage, computer consumables, and all types of office stationery.
The cost of work-related training courses is allowable if it relates to the trade being carried out by the business. If the course is to obtain a new skill not currently related to your business activities, then this wont be allowable. The training needs to be directly related to the income you currently generate through the business.
You can claim for travel expenses as long as that travel is wholly and exclusively for business purposes and isn’t a regular commute to your daily workplace. Types of expenses you can claim are:
- Airfares, train tickets and ferries.
- Tolls and congestion charges.
- Parking fees.
- Hotels and meals for overnight business trips.
Work wear and protective clothing
You cannot claim for a suit or dress for office use, but you can claim for branded workwear or uniforms such as t-shirts, sweatshirts etc. Protective clothing such as protective hats and footwear can be claimed.
How can I track my allowable expenses?
Tracking allowable expenses can be tricky. However, if you use online accounting software such as Nomi, provided by dns accountants, this links to other apps which allow you to upload receipts and expense details via your mobile phone. Making it easier to track expenses as you work.
How to claim self-employed business expenses as a sole trader
You will claim your expenses when you file your annual self-assessment tax return. Your self- assessment tax return will be due by 31st January for online filing for the previous tax year.
There are plenty of things that a self-employed sole trader can claim as expenses. However, these are more restricted than expenses that limited companies can claim.
Depending on your circumstances, it may be worth consulting an accountant like dns accountants above whether to remain as a sole trader or transfer to a limited company. Here at dns accountants we advise sole traders, contractors and freelancers.
Contact our team on 03300 886 686, or email on firstname.lastname@example.org for help and advice on allowable expenses for sole traders and self-employed.
Any questions? Schedule a call with one of our experts.
Whether you prefer to meet and speak over the internet, or if you prefer an in person conversation we can help you with your preference.
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