What business expenses can I claim as a Sole Trader?
As a sole trader, running your business inevitably comes with costs. The good news is many of these costs can be claimed as business expenses, reducing your taxable profit and allowing you to keep more of your earnings. However, it’s easy to lose track of what’s claimable, potentially leading to overpaying on your taxes.
In this guide, we’ll explain the expenses you can claim, how to keep proper records, and key HMRC rules to help you maximise your tax savings.
What is Tax Relief?
Allowable business expenses reduce your taxable profit, meaning less tax to pay. To benefit, you must keep accurate records for six years. HMRC’s rules can be complex, often requiring expenses to be “fair” and “reasonable.” When in doubt, consult an accountant.
How to Claim Business Expenses
Sole traders can claim expenses that are wholly and exclusively for business purposes. Mixed-use expenses, like a mobile phone used for personal and business calls, require you to only claim the business portion.
For instance, if your phone bill is £50 per month and 50% of usage is for business, you can claim £25. For dual-purpose items essential to your business, such as protective clothing, claims may still be valid.
Claim your expenses when filing your Self Assessment tax return, typically due by 31st January following the tax year.
Keeping Records of Expenses
Accurate records are essential. Use spreadsheets or accounting software to log expenses, including:
- Business Mileage: Track journeys and mileage. For company-owned vehicles, retain fuel receipts.
- Receipts and Invoices: Store both paper and digital copies (e.g., by scanning or photographing them) as receipts can fade. HMRC requires receipts for six years.
Common Sole Trader Expenses
Here’s a summary of common expenses you can claim as a sole trader:
1. Accommodation Costs
You can claim reasonable costs for business-related stays. Extravagant accommodation (e.g., luxury hotels) may be scrutinised by HMRC.
2. Business Mileage
Claimable mileage rates:
- Cars/vans: 45p per mile (first 10,000 miles), 25p per mile (thereafter).
- Motorbikes: 24p per mile.
Non-claimable: Regular commuting or bicycle mileage. However, business-related bicycle costs (e.g., tyres, repairs) might be claimable.
3. Charitable Donations
Donations via your business are treated as personal contributions, meaning no tax relief for your business. Gift Aid allows charities to claim extra funds from your donation, and higher-rate taxpayers can claim personal tax relief.
4. Fixed Assets
Tax relief applies to equipment and furnishings used for business purposes, such as computers, software, and office furniture.
5. General Office Supplies
Postage, stationery, and consumables are claimable if used wholly for business.
6. Professional Fees
Memberships to HMRC-approved trade bodies or subscriptions relevant to your trade are allowable. Irrelevant memberships (e.g., golf clubs) are not.
7. Telephone and Broadband
Claimable: Business calls and internet use.
Non-claimable: Line rental for shared personal and business use unless it’s a separate business line.
8. Home Office Costs
If you work from home, you can claim expenses using:
- Simplified Expenses: Flat-rate amounts based on monthly hours worked (e.g., £10 for 25–50 hours/month).
- Actual Costs: Calculating business vs. personal use of bills.
9. Training Costs
Courses directly related to improving skills for your current trade are claimable. Training for new skills outside your trade is not.
10. Travel and Subsistence
Claimable: Business-related travel (e.g., airfares, trains), tolls, and parking fees.
Non-claimable: Parking fines or regular commuting costs.
Subsistence (e.g., meals) during business travel may also qualify if work hours exceed five hours.
Other Considerations for Sole Traders
- Pensions: Contributions aren’t claimable as business expenses but offer personal tax relief.
- Medical Costs: Rarely claimable unless exclusively business-related (e.g., vision tests for using computer screens).
- Health Insurance: Not claimable for sole traders.
How Accounting Wise Can Help
At Accounting Wise, we understand the challenges sole traders face when it comes to managing accounts and claiming business expenses. Our expert team can assist you in keeping track of your finances, ensuring you’re claiming all eligible expenses, and helping you stay compliant with HMRC regulations.
Whether you need help with bookkeeping, tax returns, or advice on managing your business finances, Accounting Wise is here to make your accounting process seamless and stress-free. Get in touch today to find out how we can support you in running your business more efficiently.
Let us worry about HMRC for you and ensure you claim all the tax relief you’re entitled to.
