Guide for Sole Trader Business Expenses

As a self-employed sole trader, you can reduce your tax bill significantly by deducting allowable expenses.

The key to achieving a successful result is knowing what costs qualify and how to claim when calculating your Self-Assessment tax bill.

If you’re just starting out as a sole trader, business expenses and taxes may seem complex on top of juggling a lot of new responsibilities.

For this reason, many businesspeople employ the services of a professional accountant to ensure they comply with the law and don’t miss out on benefits.

Self-employment - what can I claim?

Paying less tax and keeping more of your income is everyone’s aim.

Unfortunately, it’s easy to lose track of what you can claim as expenses, or to forget to complete the relevant paperwork when you’re busy.

This means you could be missing out on an opportunity to reduce your taxes, leaving you paying more than necessary. Noone wants to give more of their hard-earned income to the taxman unnecessarily.

Income tax relief can make a big difference to your budget. For example, if your annual turnover is £70,000 and you claim £15,000 in allowable expenses, you’ll pay tax only on the remaining £55,000. This represents a significant saving.

Stationery and communications

In addition to claiming income tax relief for stationery, including envelopes, paper, pens and pencils, you can also claim tax back on postage and printing costs, such as printer cartridges and ink.

This tax allowance also applies to electronic communications made in connection with the business, so tax can be claimed back on mobile and landline phone bills and internet bills.

If your telephone and internet service are used for both business and personal use, you must realistically demonstrate how the costs are divided to claim tax relief on the business use.

If you can’t show the division accurately, you can’t claim any tax relief on phone and internet use.

Business equipment and tools

Claim back expenses for business hardware, including PCs, laptops and printers.

Also claim expenses for software that you have used on your business computer for less than two years. You cannot claim taxes back on small tools.

Financial and other professional services

If you have received advice from a professional, such as an accountant or lawyer, to aid your business, claim allowable expenses on their fees.

Similarly, if you need to hire architects or surveyors for business purposes, claim back the expenses. If you work from home, you must prove that you can differentiate between personal and work-related home improvements.

You can also claim tax relief on your company bank account’s overdraft, credit card fees, interest on a business loan, hire purchase costs, leasing, or other financial payments for business equipment.

Employee costs

Tax relief can be claimed on employees’ salaries, pensions, bonuses and benefits.

Also claim back tax on agency fees and subcontractors and on National Insurance contributions for your staff.

Travel costs

Claim allowable expenses for your business travel, whether it’s by bus, train, plane or taxi. Also claim back your accommodation expenses for business trips.

This applies only if the main reason for your trip is for the company. When you take a trip for both pleasure and business purposes, claim tax relief costs for the business only if you can show they are separate from the leisure part of the trip.

Car expenses

If you use a car for business purposes, claim allowable expenses on fuel, insurance and repair costs. You also have a mileage allowance available for your vehicle.

Other vehicle-related costs you can claim include low-emission zone and congestion charges, breakdown cover, parking and car hire fees.

Add up all the business motoring expenses for the year to calculate the total expenses for tax relief purposes.

Tax relief isn’t available for any fines incurred while driving, or for parking fines, due to these being activities that break the law.

Clothing and food

Whether you can claim on clothing and food depends on why they are being purchased.

If you would wear the item of clothing as your everyday wardrobe, you can’t claim it as a business expense. This is the case even if you’ve bought a regular suit for the office. However, if you’ve had to buy a specific uniform to identify what your job role is, or if you need to purchase protective clothing in order to safely do your duties, these can be claimed for as expenses.

You can also claim laundry, repair or replacement costs if you wear protective clothing or a uniform.

In terms of food, you can claim it as a business expense only if it’s purchased outside the normal work routine, such as if you’re on a business trip, for example. The cost of taking a business supplier to lunch is not included, however.

Stock

Allowable expenses can be claimed on any stock items that you re-sell, direct costs incurred from producing goods and raw materials used to manufacture items for sale.

Advertising

The costs of marketing and advertising your company, including developing and maintaining a business website, can be claimed back.

Tax relief can also be claimed for membership of a professional trade organisation, or a subscription to a trade journal.

Pension contributions

You cannot claim tax relief on your own personal pension contributions, but when you pay pension or National Insurance contributions for your employees, you can claim some back as allowable expenses.

Working from home

If you work from home as a self-employed sole trader, you can claim tax relief on the portion of your costs used in connection with the business such as electricity, heating, mortgage interest and council tax.

Again, you need to prove that the portion used for business purposes is correct, or you won’t be able to claim anything.

If you feel this sounds too complex and time-consuming, you may wish to contact a reputable accountant for assistance.