How to claim tax expenses for tools, equipment and vehicles if you’re a sole trader

It’s impossible to carry out most trades or professions if you don’t have the necessary tools or equipment. And no matter what type of business you run, you’ll probably need a computer for a range of essential tasks. Many sole traders couldn’t operate their business if they didn’t have a vehicle.

But buying tools or equipment, let alone a vehicle, is a big cost for many small firms, especially new businesses and sole traders on a tight budget. Thankfully, buying tools, equipment or a vehicle for your business can be claimed as a tax expense, which reduces your taxable income and tax bill. Which type of tax expense you claim depends upon what you’re buying and how you keep your financial records. 

Claiming tax expenses for equipment

• Computers, mobile devices, printers and other equipment you buy and keep within your business are allowable expenses, but only if you use “cash-basis accounting” (ie you record your income/costs in your financial records when you’re paid or make payments).
• If you use traditional accounting (ie you report your income and expenses on date of invoice rather than payment), you must claim them as “capital allowances”, which is another type of tax relief for businesses.
• The same rules apply, whether you run your business from premises or your home. If you buy equipment and it’s used exclusively for business, the total cost can be claimed as either an allowable expense or capital allowance.

Need to know! Allowable expenses are business costs that HMRC allows you to claim as a legitimate tax expense. If you’re not sure that an expense is allowable or not, HMRC recommends you contact the Self Assessment helpline. Each year, as a sole trader, you summarise your allowable expense claims in supplementary page SA103, which you file with your main SA100 Self assessment tax return.   

What about a mobile phone?

If you buy a mobile phone and use it exclusively for business, the purchase price, monthly contract charges and/or call costs can be claimed as a tax expense. This is easy to prove if you personally also pay for a phone for personal use. If not, you’ll only be able to charge for a proportion of your mobile phone costs, depending on how much you use it for work. 

Claim tax expenses for tools

If they’re essential to your sole trader business and used exclusively for your work, you can claim full tax expenses for buying, maintaining, repairing and replacing tools. This can be allowable expenses or capital allowances, determined by whether you use traditional or cash basis accounting to maintain your financial records.

Need to know! Training costs can also be claimed as an allowable expense. The training must of course be relevant to your current work and sole trader business and enhancing existing skills, not acquiring new skills.

Claiming tax expenses for vehicles

• If you use traditional accounting and buy a vehicle for your sole trader business, you can claim all of the cost as a capital allowance.
• If you use cash basis accounting and buy a car for your sole trader business, you must claim this as a capital allowance, but only if you’re not using simplified expenses (ie claiming a flat rate rather than calculating actual costs). All other types of vehicle, including a van, must be claimed as an allowable expense.

Did you know? Allowable expenses can also include car and van insurance, vehicle servicing and repairs, fuel (business-related journeys only), vehicle hire, licence fees and breakdown cover. You can also claim for parking, train, bus, air and taxi fares, as well as hotel room costs and (modest) meals for overnight business trips.

What about claiming for a coffee machine?

If you have commercial premises, buying a coffee machine is an allowable expense. It’s clearly incurred “incurred wholly and exclusively for the trade, profession or vocation”, as it’s only used on your premises. However, that wouldn’t be the case if you run your business from your home, where the coffee machine could be for personal use, too, so, it’s a “disallowable expense”.

Top Tip! You should keep a record of each cost that you intend to claim as an allowable expense or capital allowance. It will make filling in your tax return much easier (especially if you use accounting software). Although you don’t have to submit it with your Self Assessment tax return, HMRC can later ask you for proof of any costs you claim as an allowable expense or capital allowance, so keep all relevant invoices and sales receipts safe. There can be serious consequences for falsifying such claims. 

Capital allowances: key facts

Capital allowances are another type of tax relief available to sole traders. Capital allowances can be deducted from your profits to cover some or all of the cost of buying equipment, machinery, vans, lorries or cars. In tax and accounting terms, these are “plant and machinery”.

You can claim different amounts of capital allowances, depending on the capital allowance you use:

• annual investment allowance (AIA – up to £1m on plant and machinery)
• 100% first year allowances (the full amount for some types of plant and machinery in the year of purchase)
• the super-deduction or 50% special rate first year allowance (available on certain plant and machinery bought between 1 April 2021 and 31 March 2023)
• writing down allowances (claimable if your plant and machinery does not qualify for AIA or you’ve already claimed the maximum amount).
• If something you buy qualifies for more than one capital allowance, you choose the one to use.

Need to know! You can’t claim capital allowances or allowable expenses if you claim your £1,000 tax-free trading allowance.

Claiming capital allowances

Sole traders claim capital allowances via their annual Self Assessment tax return (details must be given in the supplementary page SA103). You must claim in the accounting period during which you purchased the item if you want to claim: annual investment allowance; 100% first year allowances; or the super-deduction or special rate first year allowance. If you don’t want to claim the full value, you can use writing down allowances to claim part of it, at any time, providing your business still owns the item.

Further essential reading:

• 45 allowable expenses you can claim when you’re a sole trader
• 15 tax expenses you can claim if you’re a sole trader running your business from home
• Keeping track of your business expenses: tips for sole traders

GoSimpleTax is award-winning software that offers you an easier way to complete and file your Self Assessment tax return. And to ensure that you’re claiming all of your allowable expenses, why not get your Self Assessment tax return checked by one of our experts? Start your FREE trial today!

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.