- An expenses guide for sole traders
- Expenses that you may be missing out on
- What expenses can you claim if you are working from home?
As a sole trader you will incur business costs on a regular basis. The good news is that these business costs may be able to be claimed as expenses, which means you will not pay tax on these purchases, this in turn could lower your tax bill.
Remember that even though you are not paying tax on your business expenses, the cost is still coming out of your profits. Buying items through your business is cheaper than buying them yourself, but make sure you don’t get carried away and eat into your profits.
One of the most common questions is what costs can be claimed as an expense and which ones cannot. To try and make things clearer we have put together a guide to our top ten expenses for sole traders.
Please note: expenses must be ‘wholly and exclusively for the purpose of your business’ and HM Revenue and Customs can ask you for evidence of these purchases at any point during the seven years following the expense.
1. Accountancy fees
If you are working as a sole trader you might be using the services of an accountant to help you with your taxation needs, especially towards the end of the tax year. Some professional fees may be claimed as an expense, such as accountancy fees and some legal costs.
2. Bank Charges
Overdraft fees, loan interest costs, credit card charges and any other banking costs could be classed as expenses as long as they are incurred on business accounts.
3. Book and magazine subscriptions
Professional subscriptions can be claimed as an expense as long as they are relevant to your business. For example, if you are working as a freelance architect, trade journals would be something you could claim for as an expense. There has been caselaw where newspaper subscriptions were not classed as an allowable expense, so if you are unsure its always best to speak to your accountant about this.
4. Business premises
Many sole traders work from home and if this is you the good news is that you may be entitled to claim a proportion of your household bills as a business expense. The amount that you could claim depends on the number of rooms in your home and what areas are being used for your business.
If you have a separate business premises then you could still claim the running costs including rent, gas and electricity as an expense.
Tools or equipment that are purchased solely for business use may be classed as an expense. For example, if you are a tree surgeon and you purchase a chainsaw to use for work the cost of the chain saw could be claimed as a business expense.
Retailers and other businesses will purchase business goods or stock, which are items that are bought for resale. The cost of these items may be able to be claimed as an expense.
One of the biggest expenses that you could claim as a sole trader will be the cost of using your car. This cost can either be through claiming mileage of 45p per mile for the first 10,000 miles and then 25p per mile for any miles travelled thereafter, or alternatively by working out the proportion of the cost of your car that has been used for business.
To calculate the proportion of your car’s running costs that you could claim you will first need to calculate the total yearly costs including all repairs, petrol, insurance etc. The next step is to work out the percentage of miles that you do each year for business purposes and apply this percentage to the total running cost. The final figure is the amount that you could expense.
8. PR, advertising and marketing
In order to be successful customers need to know about your business and your services, which is where advertising, marketing and PR come in. This will most commonly be done through the services of an agency or an individual and the fee might be classed as a business expense.
Telephone calls and texts may be claimed as expenses as long as it is only the costs of business related calls. To claim the cost of business use then your will need to keep track of which calls and texts have been used for work so that you only expense these costs.
Some sole traders find it easier to have two mobile phones one for business and one for personal use, so that they can simply expense one bill.
Business travel costs including accommodation might be classed as business expenses. Whether your business requires you to travel to London or Lisbon, rest assured that everything from oyster card fares to airport parking to congestion charges could be claimed as an expense.
You may also find the following pages helpful:
- Top ten expenses to claim as a limited company
- Limited company expenses that you may have forgotten
- What can and cannot be claimed as an expense?