45 allowable expenses you can claim when you’re a sole trader
Business expenses are inevitable when you’re 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…
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Business expenses are inevitable when you’re 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 “wholly and exclusively” for business. If a bill covers business and personal use, you must use a reliable method to work out what proportion was for business use before claiming allowable expenses (although you can claim a flat rate).
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). But what else can and cannot be claimed as an allowable expense when you’re a sole trader?
Rent, mortgage, rates, utilities and insurance
Allowable expenses can include property rent (1), mortgage interest (2) and council tax (3), business rates (4), water rates (5), electricity (6), gas (7), insurance (8) and security costs (9).
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 (or a flat rate amount under simplified expenses).
Business premises and equipment repairs and maintenance (10) are also allowable expenses for sole traders, as are repairs on a room you use at home for business (11) or a share of a larger repair (eg to a roof).
Phone, broadband, stationery and other office costs
Telephone (12), mobile (13) and broadband (14) are allowable expenses, but only for business use. Allowable expenses also include postage (15), stationery (16), printing (17), small office equipment (18) and computer software/ink cartridges (19). If you use cash basis accounting (ie you only record income or expenses when you receive money or pay a bill), the cost of equipment and tools (20) can also be claimed as an allowable expense.
Bank costs, loans and credit cards
Interest on bank and other business loans (21) and alternative finance payments (22), such as Islamic finance, can also be claimed as allowable expenses, as can bank, overdraft and credit card charges (23), hire purchase interest (24) and leasing payments (25). If you use cash basis accounting, the most you can claim for interest and incidental costs of obtaining loan finance is £500.
If you use traditional accounting (ie where you record income and expenses by the date you invoiced or billed), irrecoverable debts (26) that are written off are allowable expenses.
Advertising, professional fees and others expenses
Allowable expenses can be claimed for advertising (27) your products or services in newspapers, magazines, directories, websites, etc, as well as marketing costs (28) such as direct mail, free samples and creating a website. You can also claim for trade or professional journals (29) and trade body or professional organisation membership (30) if relevant to your business. Accountants, solicitors, surveyors, architects and other professional fees (31) can be claimed, professional indemnity insurance premiums (32), too.
Vehicle, travel, accommodation and clothing
If you buy a vehicle for your business, you can claim it as a capital allowance. Allowable expenses also include car and van insurance (33), vehicle repairs (34) and servicing (35), fuel used for business (36), vehicle hire charges (37), vehicle licence fees (38) and breakdown cover (39). You can also claim for parking (40), train, bus, air and taxi fares (41), hotel room costs (42) and meals for overnight business trips (43). Allowable business expenses can be claimed for staff uniforms (44) and protective clothing (45).
Disallowable expenses: what can’t you claim for?
Parking or speeding fines aren’t allowable expenses – they’ll have to come out of your own pocket. And, you can’t charge for fuel or mileage for travel between your home and normal premises. If you buy a vehicle for business you can claim this as a capital allowance (providing you’re not using simplified expenses).
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 two years. Depreciation of equipment cannot be claimed as an allowable expense.
You can’t claim for everyday (ie non protective or non-uniform) work wear (eg a business suit) or for carers/domestic help (eg a childminder). 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 tax disputes are not allowable.
What about entertaining clients?
Capital repayment of loans, overdrafts or finance arrangements cannot be claimed as allowable expenses. A popular misconception is that entertaining clients can be claimed as an allowable expense. It can’t. Event hospitality is another disallowable expense.
Donations to political parties or charities aren’t allowable (sponsorship can be), neither are gym membership fees. Stock or products that you take from your business for personal use/consumption aren’t allowable and you cannot treat yourself to a daily meal-deal on your business. There really is no such thing as a free lunch when you’re a sole trader.
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