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What expenses can I claim as a sole trader/self-employed?


Being self-employed has a lot of perks. Sole traders can work from home, set their own hours, and be in control of their own careers. But, there are also challenges that come along with being self-employed such as managing your finances and knowing how much tax to pay.

Taxes can be a big financial burden, especially if you’re not sure what expenses you can claim. The good news is that there are a number of expenses you can claim if you are a self-employed sole trader in the UK. In this blog post, we will explore some of the most common expenses that you can claim so that you can save money on your taxes.

How much can you claim as expenses?


There is no limit to the expenses you can claim as a sole trader in the UK. However, you can only claim for expenses that are allowable under UK tax law. This means that you can only claim for expenses you incur wholly and exclusively for the purposes of your business.


If you are self-employed and claiming expenses against your income, you will need to keep records of all your expenditure to support your claims. HM Revenue and Customs (HMRC) may require evidence of your expenditure, so it is important to keep receipts or other documentation to back up your claims.


Office equipment and software


The expenses you can claim will depend on the type of accounting you use – cash basis or traditional accounting.


Sole traders who have a turnover of less than £150,000 in a year can use cash basis accounting.


This is an accounting method where only the cash actually exchanged (money received or paid) is recognized.


If you use cash basis accounting, you can claim allowable expenses if you buy office equipment such as computers, printers, and other tools for business use. You can also claim any software or items that are typically used for less than two years as allowable expenses.


Traditional accounting means the accounting is done based on the invoices you have received and sent (this includes payments you are owed or the ones you are yet to make).


If you use this type of accounting, you will need to claim your equipment expenses under capital allowances.

Claim capital allowances if you use any of these to run your business for the long term:

  • machinery
  • equipment
  • business vehicles (lorries, vans, or cars)
  • software that you will use (such as Office 365 or Adobe) for more than 2 years


For instance, you can claim as much as £1 million for certain machinery. You can also claim the full amount of the plant and machinery in the year they were purchased.


Stationary


The other tax-saving costs are related to office supplies that you use such as:

  • Printer ink
  • Cartridges
  • Fax and mobile/phone bills
  • Internet bills
  • Postage
  • Printing
  • Stationary


Utility, rent, and insurance


As a sole trader, you can claim these costs related to maintaining your business premises (office):

  • Property rent
  • Mortgage interest
  • Electricity, gas, and water rates
  • Council tax
  • Property insurance
  • Security


If you are self-employed and run your business from home, you can claim a percentage of your household bills as business expenses. This includes things like your mortgage or rent, council tax, gas and electricity, water and sewerage charges, and telephone and broadband costs.


You can also claim a proportion of the costs of running your home office, such as heating, lighting and cleaning.


To do this, you will need to calculate the expenses based on the number of rooms used to run the business or the amount of time spent at home to run your business.


For example, if you use one room out of five in your home as an office and your electricity bill is £500 in a year, you can claim £100 (£500 / 5).


Similarly, if you work just one day from home in a week, you can claim £14.29 (£100/ 7) as allowable expenses.


Professional costs


If you need to consult professionals such as architects, surveyors, a lawyer or an accountant for tax advice, you can claim the costs related to hiring them.


The professional services you hire must be directly related to your business to be eligible for tax deductions.


Bank charges and interest on loans


Sole traders can claim these expenses related to:

  • Bank and credit card charges
  • Business loan interests
  • Bank loan interest
  • Overdraft charges
  • Leasing payments
  • Hire purchase interest
  • Alternative finance payments


Note that you can only claim £ 500 in bank charges or the cost of obtaining a business loan if you use cash-basis accounting.


If you use cash accounting, you also cannot claim bad debts. However, irrecoverable debts can be claimed as allowable expenses if you are using traditional accounting.


Staff costs


One of the main expenses that you can claim is the cost of employing staff. This includes their wages, National Insurance contributions, and any other associated costs. You can also claim for the cost of training and development courses that you undertake to improve your and your staff’s skills.


Here are the expenses that you can claim as staff costs:

  • Wages and salaries
  • Bonuses
  • Pension
  • Benefits
  • Training
  • National Insurance Contribution
  • Agency fees
  • Subcontractors
  • Employee uniforms


Clothing


Sole traders can claim certain expenses related to their work, including the cost of any special clothing required for the job.


This could include a uniform, protective clothing or costumes for entertainers or actors. You can also claim the cost of laundry and dry cleaning of the special clothes you need to wear for your work.


Depending on the industry and the job,, you can claim a flat rate as clothing expenses. For instance,

coppersmiths can claim £120 while scaffolders can claim £140.


Travel


Although you cannot claim the costs related to commuting between home and your office, you can claim these allowable expenses:

  • vehicle license fees
  • vehicle insurance
  • fuel
  • repairs and servicing
  • parking
  • vehicle hire charges
  • taxi, air, train, and bus fares
  • breakdown cover
  • meal costs on overnight business trips
  • hotel rooms


Marketing


If you are spending money on promoting your business, then you can usually claim this back against your taxes. The tax-saving marketing expenses are related to:

  • advertising in newspapers, magazines, directories, or online
  • free samples
  • bulk mail advertising
  • website including website maintenance and purchase of domain name


However, you cannot deduct business entertainment expenses from your taxable income. This includes the cost of entertaining clients or potential clients, such as taking them out to dinner or to a sporting event.


Keep detailed records of your expenses


As a sole trader in the UK, you can claim a number of legal, financial, and professional costs as business expenses.


To claim these costs as business expenses, you will need to keep receipts and invoices as proof of payment. You will also need to ensure that the costs you are claiming are genuine business expenses and not personal costs.


If you are unsure about which costs you can claim as business expenses, you can speak to one of our qualified accountants.