As a self-employed sole trader, your business will naturally incur running costs. The good news is that many of these running costs can be claimed as business expenses, meaning you’ll pay less tax and get to keep more of your hard-earned money.
It’s easy to forget or lose track of what can and can’t be claimed as sole trader expenses, given the array of eligible items. Ultimately though, this means you could be paying more tax than you need to be.
In this article, we'll be going through the types of expenses you can claim as a self-employed sole trader. This jargon-free 'Take the Leap' video also takes you through the basics.
We've also got a run-down of the business expenses you can claim as a limited company, too.
Short on time?
If you're pressed for time, you can download this run-down of sole traders expenses in a handy PDF guide, available to read whenever you're ready.
What is tax relief for sole traders?
When you're self-employed you pay Income Tax on your trading profits. Allowable business expenses reduce the amount of profit on which sole traders pay Income Tax. So, more allowable expenses means less taxable profit and less Income Tax to pay.
To account for your expenses properly, you need to keep accurate records of everything and add up all your business costs to report on your Self Assessment tax return. Bear in mind that you’re legally bound to keep these records for six years. Our Crunch Free bookkeeping software can help with all of this.
As ever, HMRC rules can be complex and are often based on concepts such as the ‘fairness’ and ‘reasonableness’ of expenses claimed. When in doubt, always contact an accountant such as Crunch for advice.
Freelancing On The Side guide
How to claim self-employed business expenses as a sole trader
As a sole trader, you can claim back any expenses you’ve incurred that relate directly to your self-employed business in much the same way as limited companies. It's important you understand all the expenses you can claim, as allowable business expenses reduce the amount of tax you need to pay HM Revenue and Customs (HMRC) when you submit your Self Assessment tax return. 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 £50 but you only use your phone 50% of the time for business use, you can only claim for £25 as an expense. Evidencing this may, however, be difficult if the phone contract is not in the name of your business.
However, if the dual purpose is only incidental because of a business necessity, the claim may still be valid, such as protective work clothes or uniforms that could also be used for personal use.
Unlike limited companies, sole traders are able to use HMRC's simplified expenses for certain types of business expenses if they wish. This means you can calculate some of your business expenses using flat rates instead of working out your actual business costs.
There's a simplified expenses checker on gov.uk which you can use to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.They can be used for some vehicles, working from home, or for living at your business premises.
Sole traders claim their expenses when they file their annual Self Assessment tax return; 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.
How to keep a record of my sole trader business expenses
If before working for yourself you were previously an employee, you may have had to file expenses with your employer. Now you're the boss you'll need to do the same for your business (and any employees if you have them).
Keeping track of your expenses such as business mileage is essential, as, without the breakdown of journeys and mileage covered, HMRC could refuse to validate your expense claim.
We suggest detailing all business mileage on a spreadsheet and keeping it up-to-date throughout the year. If you’re claiming tax relief for fuel when using a car owned by the business, you must keep hold of all of your receipts.
Download our Crunch Business Mileage spreadsheet
For other business expense, the cost of anything that’s necessary for the running of your business is a business expense – the trick is to make sure you meticulously record everything so you don’t lose out. Unlike mileage, you’re not limited to a certain amount, within reason.
If you’re not using online accounting software such as Crunch, the best way to keep track of what you’ve spent on supplies and other expenses such as travel and subsistence is, again, in a spreadsheet. The main difference is you don’t have to record each item separately – for example, if you have bought 10 packs of 100 pens at £3 each, you can record it as 1000 pens totalling £30.
It is, however, important to keep the receipts for every separate purchase. Receipts must be kept for six years after you have filed your returns, as HMRC could decide to investigate at any point within this time.If you’re just away for the day, you can claim lunch costs as an expense if your working day exceeds five hours, this extends to dinner if you’re working up to ten hours.
As always, ensure that you keep receipts for everything. It’s also advisable to log all expenses in your accounting software, or on a spreadsheet so that you always have the date and exact costs at hand in case HMRC decide to take a closer look. Also be aware that HMRC take a dim view of excessive use of taxis, particularly if they appear unnecessary – i.e. it was a very short journey.
Download our Crunch Business Expenses spreadsheet
Storing receipts can be done in a variety of ways and it’s always best practice to keep the paper copies somewhere safe, as well as backing them up digitally, such as with a picture on your phone (receipts tend to fade, but digital backups will remain pristine forever). You can manually scan them or use a mobile app like our Snap app to record the details.
You can claim expenses for your businesses accountancy fees, providing the accountant's time is being spent working on your sole trader accounts and not on personal items, such as the production of your HMRC Self Assessment.
Accommodation expenses whilst on business travel
Full tax relief can be claimed on accommodation costs, such as an overnight hotel when travelling for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question the necessary need for you to stay at the Ritz, but this doesn’t necessarily mean that you have to travel on the breadline.At Crunch, we’ve developed a mobile app to simplify recording expenses. Through our ‘Snap’ app, you can take a photo and have the details automatically uploaded to your Crunch account.
Bank charges, credit card costs, and other financial charges
Many types of bank charges can be claimed as an allowable business expense, though usually, they should be for accounts or cards in the name of the business. You can claim business costs for:
- bank, overdraft and credit card charges
- the interest on business and bank loans (but not repayments of the capital or loan amount )
- hire purchase interest
- leasing payments
- alternative finance payments, for example, Islamic finance.
You can't claim for repayments of personal loans, overdrafts or finance arrangements.
Business Insurance policies
You can claim for any insurance policy for your business, for example, professional indemnity insurance or public liability insurance, or insurance for your business premises if you have them. Find out more about small business insurance - you can even get a discounted quote as a Crunch client or Crunch Chorus member.
Business mileage for sole traders
If you use your personal vehicle for business travel to a temporary work location, you can claim the following rates:
Ensure that you keep receipts of everything and a mileage log. Also, be aware that HMRC may query any excessive use of taxis.
You can use our business mileage spreadsheet and there are mobile apps that can automate the process for you as well.
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 can claim the cost 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.
We also provide a mobile app for Crunch clients to simplify recording your mileage. Our ‘Tripcatcher’ app streamlines the process of claiming by recording mileage, setting recurring mileage and integrating with your Crunch account.
You can use our business mileage spreadsheet and there are mobile apps that can automate the process for you as well. We’ve got an article explaining everything you need to know about business mileage.
If you’re a self-employed sole trader, then you won’t be able to have a company car, as there is no company. However, you still have a choice of how to claim your business mileage expenses.
You can either claim the full running costs, such as insurance, repairs and servicing and fuel with a suitable percentage taken off for any personal use of the vehicle. Or, if you prefer, you can make things simpler and just claim HMRCs business mileage rates for the journeys you make.
We usually recommend that sole traders claim business mileage, unless the vehicle is a tool of the trade, such as a van for a delivery driver or a motorbike/moped for a takeaway rider.
If you decide to claim the full costs, you may also be able to claim towards the purchase costs, though this can be complicated, and if you use the vehicle for personal travel as well, it gets even more complex. We recommend you speak to an accountant for further details and to help you decide what is the best solution for you.
Business rent, rates and other costs
If you have business premises, you can claim expenses for:
- business rent
- business and water rates
- utility bills (such as your electricity bill)
- property insurance
- using part of your home as an office (more info on our working from home expenses article).
You cannot claim any expenses or allowances for buying business premises (you may be able to if you change to being a limited company), but you are able to claim certain repair and maintenance costs either as capital allowances or allowable expenses. It's a complex area for sole traders, we recommend you get individual advice from an accountant.
For a sole trader business, you and the business are considered 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.
Childcare costs and expenses
HMRC does not allow childcare as a legitimate business expense. However, sole traders can claim tax relief through the tax-free childcare scheme. Read our Tax-Free Childcare article for the full details.
Employee expenses as a sole trader
As a sole trader, you're self-employed, not an employee. But it is possible for your business to take on an employee, even if you remain as a sole trader.
Many businesses as they grow, may choose to switch from operating as a sole trader to setting up a limited company. There are a number of advantages to running your business as a limited company. But if you choose to remain a sole trader, you can still claim any staff costs as well as business expenses that your employee incurs provided they meet HMRCs allowable expenses rules and you keep records of everything.
If you have employees, you can claim staff costs including:
- employee or staff salaries
- agency fees
- employer's National Insurance
- uniforms for employees
- training courses.
Eyesight tests and glasses as a sole trader
You can claim for vision tests providing it's 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're prescribed only for use during your time at work for visual display.
Fixed assets such as 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's allowed because the assets are for a room that is used for business purposes.
Our article "Working from home? What you can and can’t claim as an expense" has further information.
General office costs and business 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.
Legal and other professional fees
As long as they are directly related to your business, legal fees and other professional fees are allowable.
Marketing, advertising, and public relations (PR)
Generating leads and advertising is an important part of running a successful business. You need to make sure that your potential customers know about your products or services, which is where advertising, marketing, and PR comes in. This may be a one-off cost or an ongoing charge, and as long as the service is exclusively for your business, the cost could be classed as an expense. These could include:
- advertising in local or national newspapers
- paid placements in business directories
- direct marketing (sending out printed mailshots)
- website costs (build, maintenance, hosting etc.)
- costs of a business website domain or getting a business email address.
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 aren’t allowed as an expense, but instead, you can get personal tax relief from contributions you personally make into your own pension scheme.
Professional subscriptions such as membership of a trade body, or registrations needed in order to enable you to trade are allowable, provided they're HMRC approved professional bodies which are relevant to your employment. If it's not directly relevant, then it’s not allowed. Membership of your local golf club if you’re a plumber is not going to be allowed, no matter how much you think it may help your business!
Telephone, mobile & broadband expenses for sole traders
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.
The use of your home as an office when you're self-employed
If it’s necessary for you to work at home and not just for conducting additional work outside of the office, you’re entitled to claim your allowable home expenses as a business cost.
If you work from home, you have two choices: you can choose to claim simplified expenses for the self-employed, or you can work out your actual costs by calculating the proportion of personal and business use for your home, ie how much of your utility bills are for business and the number of rooms you use. Gov.uk has a simplified expenses checker to help you decide which method is best for you.
The main 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 when you submit your tax return.You can only use simplified expenses if you work for 25 hours or more a month from home.
If you want to use a more complex method by calculating the proportion of home running costs used when working from home and running your business, please seek advice from your accountant.
For more useful info on claiming home office and telephone expenses, check out our article "Working from home? What you can and can’t claim as an expense".
Training expenses for sole traders
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.
Travel and subsistence expenses for sole traders
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.
Work uniform or protective clothing
As we mentioned at the beginning of the article, you cannot claim for a nice suit or dress as it may have a private use. However, if you need a uniform for your business, perhaps a t-shirt or hoodie with your business name and logo on, or if you need special protective clothing such as steel toe-cap boots, you're able to claim for the costs. If you're an actor or entertainer and need a costume, you can also claim for that, but not for any everyday clothing.
Want all this info in a handy guide?
Our jargon-free PDF guide 'Sole Trader Business Expenses' covers the topics we've discussed here. Download it now and read it whenever you like!