Business expenses are inevitable when you are a sole trader. Thankfully, many can be deducted as allowable expenses from your taxable profits to lessen your Income Tax bill.
To qualify as an allowable expense, something must be bought for your business exclusively. If a bill covers a business and personal use, you must use a reliable method to work out what proportion was for business use before claiming allowable expenses.
The cost of buying goods for sale or use to deliver a service are allowable expenses, as are payments to sub-contractors, agency fees, wages, salaries and other staff costs (eg bonuses, pensions, benefits, employers' NICs, training etc.)
Allowable expenses to claim
Allowable expenses can include property rent, mortgage interest, council tax, business rates, water rates, electricity, gas, insurance and security costs.
If you use your home for business, you can claim a proportion of your utility bills for business use. So, for example, if you use one room in your six-roomed house for business, you can claim a sixth of your electricity and gas bills.
Business premises and equipment repairs and maintenance are also allowable expenses for sole traders, as are repairs on a room you use at home for business or share of a larger repair e.g. to a roof.
Telephone, mobile and broadband are allowable expenses, but only for business use. Allowable expense also include postage, stationary, printing, small office equipment and computer software/ink cartridges. If you use cash basis accounting the cost of equipment and tools can also be claimed as an allowable expense.
Interest on bank and other business loans and alternative finance payments, can also be claimed as allowable expenses as can bank, overdraft and credit card charges, hire purchase interest and leasing payments. If you use cash basis accounting the most you can claim for interest and incidental costs of obtaining loan finance is £500.
Allowable expenses can be claimed for advertising your products or services in newspapers, magazines, directories, websites, etc, as well as marketing costs such as direct mail, free samples and creating a website. You can also claim for trade or professional journals and trade body or professional organisation membership if relevant to your business. Accountants, solicitors, surveyors, architects and other professional fees can be claimed, professionally indemnity insurance premiums too.
If you buy a vehicle for your business, you can claim it as a capital allowance. Allowable expenses also include car and van insurance, vehicle repairs and servicing, fuel used for business, vehicle hire charges, vehicle licence fees and breakdown cover. You can also claim for parking, train, bus, air and taxi fares, hotel room costs and meals for overnight business trips. Allowable business expenses can be claimed for staff uniforms and protective clothing.
Disallowable Expenses: What can't you claim for ?
Parking or speeding fines are not allowable expenses, they'll have to come out of your own pocket. You cannot charge for fuel and mileage for travel between your home and normal premises. If you buy a vehicle for business you can claim this as a capital allowance.
For equipment you buy and keep for business use, such as computers, you can only claim allowable expenses if you use cash basis accounting. If you use traditional accounting, you must use capital allowances. The same is true of software you will use for more than to years. Depreciation of equipment cannot be claimed as an allowable expense.
You cannot claim for everyday (i.e. non protective or non-uniform) work wear or for carers/domestic help. Legal costs that result when buying property and machinery are disallowable, but, if you use traditional accounting, they can be claimed as capital allowances. Legal fines and the cost of settling a disputes are not allowable.
GoSimpleTax. 2021. 45 Allowable Expenses You Can Claim When You're A Sole Trader. [online] Available at: <https://www.gosimpletax.com/blog/45-allowable-expenses/> (Accessed 12 November 2021).
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