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What expenses can I claim as a Sole Trader?

Posted on Oct 2nd, 2018 | Expenses

Crunch What expenses can I claim as a Sole Trader? - Stationery

As a 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 an expense, 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 running down all the expenses you can claim as a sole trader. We’ve also got a run-down of all the business expenses you can claim as a limited company, too.

This article covers:

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 tax to pay.

To account for your expenses properly, you need to keep accurate records of everything. Bear in mind that you’re legally bound to keep these records for six years.

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.

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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 £50 but you only use your phone 50% of the time for business use, you can only claim for £25 as an expense.

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.

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.

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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 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 company owned car, you must keep hold of all of your receipts.

Download our business mileage spreadsheet to record your mileage

For other business expenses then the cost of anything that’s necessary for the running your business will receive tax relief – 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 of supplies, within reason.

If you’re not using online accounting software 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 – £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 if you exceed five working 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 handy expenses spreadsheet to keep your own records

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 – with a picture on your phone for example (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.

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You can claim expenses for your businesses accountancy fees, providing the accountants time is being spent working on your sole trader accounts and not on personal items, such as the production of your HMRC Self Assessment.

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Full tax relief can be claimed on accommodation used 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, however, this doesn’t necessarily mean that you have to travel on the breadline.

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If you use your personal vehicle for business travel to a temporary work location 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
Bicycle 20p 20p

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.

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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.

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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.

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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.

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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.

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

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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.

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Claims to certain HMRC approved professional bodies which are relevant to your work are allowed. If it’s not directly relevant then it’s not allowed.

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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.

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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 calculate your allowable home expenses.

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.

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

If you want to use a more complex method by calculating the proportion of home running costs used in 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.

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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.

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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.

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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!

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Written by Ross Bramble

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