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Expenses You Can Claim as a Sole Trader

sole trader tax expensesAs a self-employed sole trader, claiming as much tax relief as possible will no doubt be one of your biggest priorities. All one-man-bands are taxed on their hard-earned profits. When you work for yourself, the last thing you want is to pay more tax than is necessary. Within this guide, we will help ensure you pay the right amount of tax as a sole trader – but not a penny more.

We’ve also got a run-down of all the business expenses you can claim as a limited company business expenses you can claim as a limited company, too.

It doesn’t matter whether you’ve been self-employed for 12 months or 12 years, all sole traders are entitled to claim for allowances and expenditure relating to their business. If you are interested in any tax-saving opportunities as a sole trader, read on as we disclose the main business expenses you can claim for with HM Revenue and Customs (HMRC).

Do check out our other resource on Sole Trader tax topics for more information at https://libabunaccountancy.com/blog/

 

What is tax relief?

Tax relief can be used to offset against your taxable profits when filing a self-assessment tax return with HMRC. As a self-employed sole trader, there are income tax allowances for self-employed individuals that you should be aware of. By claiming tax relief on business expenses i.e. costs directly linked to the running of your business, you can recoup more of your hard-earned income and pay a little less income tax.

It’s even possible to reclaim the VAT paid on goods and services for your business in your quarterly VAT returns, providing you are VAT-registered.

 

How to claim business expenses as a sole trader

Sole traders can claim back any expenses they’ve incurred that relate directly to their business in much the same way as limited companies. The rule of thumb when claiming for any expenses is that you can only claim for expenses which are ‘wholly and exclusively’ incurred in the performance of your duties.

HMRC will normally allow your claim if you meet these conditions. When there are both personal and business elements (i.e. dual purpose) to your claim it’s unlikely to be accepted, because the expense would be needed regardless of the business.

For example, if your monthly mobile phone bill is £100 but you only use your phone 50% of the time for business use, you can only claim for £50 as an expense.

Sole traders claim their expenses when they file their  Self Assessment; this is typically done at the beginning of each year (the deadline is 31st January for online filing), although they can file any time from the end of the previous tax year on 5th April.

Keen to know what expenses are tax deductible as a sole trader? Read on as we disclose the main running costs for your business that are allowable and some that are not allowable to claim for tax relief.

 

Accommodation costs and expenses whilst on business travel

You can claim expenses for accommodation costs when you travel to a temporary workspace or location for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question any excessive claims for expensive hotels or apartments with more than one bedroom.

 

Bad debts

You can claim for amounts of money you include in your turnover but will not ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they will not be recovered from your customer in the future.

Bad debts cannot be claimed if you use cash basis accounting because you’ve not received the money from your debtors. With cash basis, you only record income on your return that you’ve actually received.

 

Business mileage

If you use your personal vehicle for business travel to a temporary work location you can claim the following rates

You can claim the following rates:

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

Motorbikes

24p

24p

*electric car owners currently get the same mileage rates

Ensure that you keep receipts of everything and a mileage log. Also, be aware that HMRC may query any excessive use of taxis.

HMRC do not allow business mileage to be claimed by sole traders using a bicycle, which is rather unfortunate for those green-minded among you, or even cycle couriers. However, you may be able to claim the costs of buying a bicycle for work and consumables such as tyres or maintenance. Any personal use of the bicycle is likely to reduce the amount you can claim. It’s best to speak to an accountant or your local tax office to confirm what you can claim.

 

Business travel and Subsistence expenses

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 a base of operations. However, occasional trips to the same place are still claimable. This specifically works in favour of ‘itinerant’ workers. Itinerant workers are sole traders who have no specific base of operations and have work locations that vary from job to job.

Expenses relating to airfares, train tickets and ferries can also be covered under business travel, provided the above points are applied and the travel is for business purposes.

Tolls, congestion charges, and parking fees are all allowable expenses, where the travel is for business. However, you can’t claim a parking fine as a business expense.

You can claim for the cost of hotel rooms and meals on overnight business trips.

HMRC accept that extra allowable costs for food and drink may be incurred where the nature of your business is ‘itinerant’ (for example a construction worker who works in a different location every week). However, these rules are complex and you should seek advice from an accountant to see if these apply to your business.

 

Donations

For a sole trader business, you and the business are the same legal entity. This means that even though you might be making donations from your business bank account, it’s still treated as though you personally donated the money.

This means the business won’t get any tax relief.

However, if you donate via Gift Aid, the receiving charity can receive 25p tax relief for every £1 that you donate. For a donation to receive Gift Aid, you often need to fill in a specific Gift Aid form for your chosen charity or at least tick a box to indicate that you want Gift Aid to apply.

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.

 

Equipment and Office Furnishings

The cost of anything that is necessary and essential for your business will receive tax relief. Although these aren’t expenses that reduce profits, you receive capital allowances that decrease the amount of income tax paid.

This covers computers, printers, and software. You may also claim reasonable relief towards the cost of equipping/furnishing a business office, e.g. chairs, bookcase. This may appear to hold a dual purpose, but it is allowed because the assets are used in a room that is used for business purposes.

 

Eye tests and glasses or spectacles

You can claim for vision tests providing it is necessary for the initial or continued use of visual display equipment in your duties. However, you’re unable to claim for glasses as they offer a dual purpose and are not exclusively related to business use, unless they are prescribed only for use during your time at work for visual display.

 

General office costs and purchases

Minor purchases with receipts that are used wholly and exclusively and necessarily in the performance of your duties are claimable. This includes postage, computer consumables, and office stationery.

 

Marketing

The cost of marketing including newspaper advertising, directory listings, mailshots, free samples and website costs can be claimed.

 

Medical insurance and health costs for sole traders

Unfortunately for sole traders, health and medical insurance costs can rarely be claimed as an expense.

 

Pensions for sole traders

As a sole trader, payments to your pension are not allowed as an expense, but instead, you can get personal tax relief from contributions you personally make into your own pension scheme.

 

Professional fees

The costs incurred for engaging professional services—such as hiring an accountant, lawyer or architect—can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.

 

Professional subscriptions

Professional subscriptions such as membership of a trade body, or registrations needed in order to enable you to trade are allowable, provided they are  HMRC approved professional bodies which are relevant to your employment. If it is not directly relevant, then it’s not allowed. Membership of your local golf club is not going to be allowed no matter how much you think it may help your business

 

Telephone and broadband expenses

If you’re using a home or mobile phone line for both business and personal calls you can’t claim for line rental, because there is a dual purpose, i.e. the expenses aren’t exclusively for business purposes.

However, you may claim expenses for the business phone calls used on that line, provided they can be identified on the phone bill. Alternatively, you could set up a separate phone line or mobile contract in the business name which is used 100% for business.

The same approach is taken when determining the allowable expenses associated with Broadband.

 

Training expenses

The cost of work-related training courses is allowable if it relates to the trade being carried out by the business. So a course to enhance your existing knowledge which relates to your trading activity will be allowable. However, a course to retrain you with a new skill to enable you to branch out into new sectors or offer a new service will not be allowable.

It’s therefore important to be able to demonstrate that the training is directly related to the income which is currently being generated by your business.

 

Use of your home as an office

There are many self-assessment expenses you can claim if you work from home, including:

  • Mortgage interest (not the capital repayment aspect of your mortgage)
  • Rent
  • Council Tax
  • Water
  • Electricity
  • Heating
  • Property repairs
  • Cleaning costs

In order to work out the proportion of household expenses you can claim for each of the above costs, you will need to determine how many rooms at home you use for work purposes and how long you spend using it for work.

Let’s say for example your property has five rooms and you use one of them Monday to Friday for business and it has private use at the weekends. You would start by calculating a fifth of your mortgage interest, rent, Council Tax, utilities bills and so forth, then you would divide by seven days a week and times by five working days. This adjusts your claim to only reflect the business use of this room.

Aside from manually calculating the business use of your home, you can choose to claim  simplified expenses for the self-employed

This method is known by HMRC as simplified expenses, which uses a flat rate based on the hours you work from home each month. The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month

Flat rate per month

25 to 50

£10

51 to 100

£18

101 and more

£26

Gov.uk has simplified expenses checker to help you decide which method is best for you.

 

If you need help in identifying expenses you can claim as a Sole Trader , please give us a call on

+44 01234 712840.

 

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