If you are a sole trader, you can claim tax relief on business expenses. However, what is considered a business expense? We’ve put a short blog together that summarise sole trader expenses and what you can and can’t put through your books.
Sole traders and other self-employed professionals are entitled to claim tax relief on expenses that occur directly due to business. These are considered allowable expenses. As stated on the government’s website, “allowable expenses do not include money taken from your business to pay for private purchases”.
Here is a list of the most common allowable business expenses that sole traders and other self-employed professionals can claim tax relief on.
- Costs associated with your working costs – such as pens, paper, and your phone bill.
- Travel – includes petrol/diesel, parking tickets, train and bus fares.
- Clothing – if you are required to wear a uniform.
- Staff – salaries of subcontractors.
- Produce – things that you buy to sell on at a later date (the government website gives “stock or raw materials” as an example)
- Financial costs – costs that occur as a result of insurance cover, bank fees, etc.
- Standard bills (office) – such as heating and electric.
- Marketing – if you wanted a website, for example, you could consider it an allowable expense.
- Training – work-specific training, courses, etc.
Did you know self-employed professionals can partially claim an expense if it’s been generated with a combination of personal and business use? For example, if you have a monthly phone bill that is £100 but you use it 50% for work, 50% for business – you can put 50% of that bill (£50) through your books as an allowable business expense? This could be beneficial information for those who work from home because you may be able to claim a proportion of costs such as the heating and electricity bills, mortgage or rent, and the internet.
If you’re not a fan of doing intricate calculations, HMRC may have the answer you’ve been looking for. There are such things as simplified expenses where you claim a flat rate for vehicles, working from home and living on your business premises. It’s worth doing more research if you’re interested in finding out more.
Above are the allowable expenses that sole traders and other self-employed professionals can claim. Therefore, summarising what they can’t claim is pretty straightforward. Any costs incurred not as a result of business activities are not allowed to be put through the books. We could write an endless list, but here are a few things that you can’t try and justify as allowable expenses.
- Clothing such as flip flops and t-shirts because you “dress down” when working from home.
- Fines (parking charges, for example) – even if they happened as a result of a work-related journey.
- Entertaining clients and taking them out for gourmet dinners (because you could have just enjoyed a glass of water instead).
- Holidays – we don’t need to explain this one in any more detail!
Hopefully this article helps you understand sole trader expenses and what can and can’t be claimed. If you have any questions or doubts, we recommend you speak with your accountant if you have one, or visit the government’s website for more information.