What Expenses Are Sole Traders Allowed to Claim?
If you are self-employed, some of the costs of running your business can be claimed as expenses. These are known as allowable expenses. They reduce your business profit, which can also reduce the amount of tax you need to pay.
As a sole trader, you can usually claim costs that are used for your business. This may include office costs, travel, stock, tools, equipment, marketing, insurance, phone bills and accountancy fees.
You cannot claim personal costs, everyday clothing, fines, client entertainment or the personal part of mixed-use costs.
When is it a Personal vs Business Expense
Sometimes the line between business and personal can get confusing. For example, if you use your mobile phone for both work and personal calls, you may be able to claim the business share. This means if half of your phone use is for work, you may be able to claim 50% of the bill.
In this guide, we explain what sole traders can and cannot claim, how to keep records, and when an accountant can help.
What are allowable expenses?
Allowable expenses are costs that help you run your business. These costs are deducted from your income when working out your taxable profit.
For example, if your business earns £35,000 and you have £5,000 of allowable expenses, your taxable profit would usually be based on £30,000.
You claim these expenses through your Self Assessment tax return. You do not usually need to send receipts with your return. However, you must keep clear records in case HMRC asks to see them.
The main rule is simple. The cost must be for your business. If a cost is partly personal, you can only claim the business part.
What expenses can sole traders claim?
The expenses you can claim will depend on the type of business you run. A builder, designer, cleaner, consultant or hairdresser may all have different costs.
Common expenses sole traders can claim include:
- office costs, such as stationery, postage and printer ink
- phone and internet costs
- accountancy and bookkeeping fees
- software subscriptions
- business travel and mileage
- tools and equipment
- stock, materials and goods for resale
- protective clothing or uniforms
- marketing and advertising
- business insurance
- wages, subcontractor costs and agency fees
The cost must be linked to your work. It should also be reasonable and supported by records.
Office and working from home costs
If you rent an office, workshop or other business space, you may be able to claim the running costs.
This can include rent, business rates, power, water, insurance, repairs and security.
If you work from home, you may be able to claim part of your household bills. This could include heating, electricity, internet and phone costs.
You need to use a fair method to work out the business share. For example, you might base it on the number of rooms you use for work, or how much time you spend working from home.
Some sole traders use simplified expenses instead. This lets you claim flat rates for some costs, rather than working out the exact amount. This can apply to working from home and business mileage.
Travel and vehicle expenses
You can usually claim travel costs when the journey is for business.
This may include:
- train fares
- bus fares
- taxis
- parking
- fuel
- hotel stays for business trips
If you use your own car or van for work, you can claim the business share of the running costs. You may also choose to use simplified mileage rates.
You cannot usually claim normal travel between home and your usual place of work. Personal journeys cannot be claimed either.
It is important to keep clear mileage records. These should show the date, journey, reason for travel and number of business miles.
What expenses can sole traders not claim?
Not every cost can be claimed, even if it feels linked to your work.
Sole traders usually cannot claim:
- personal living costs
- everyday clothing
- food and drink that is not linked to business travel
- client entertainment
- fines and penalties
- childcare costs
- personal holidays
- gym memberships in most cases
- loan repayments, although business loan interest may be allowed
- the personal part of mixed-use costs
Clothing is a common area of confusion. Uniforms, protective clothing and branded workwear may be allowed. Everyday clothing is not usually allowed. Even if you wear it for work.
Client entertainment is another common issue. Taking a client out for food, drinks or hospitality is not normally an allowable expense.
What about the £1,000 trading allowance?
Some sole traders can use the £1,000 trading allowance instead of claiming actual expenses.
This can be useful if your business costs are very low. However, you cannot claim both the trading allowance and your actual business expenses. You need to choose one option.
If your expenses are more than £1,000, claiming actual expenses may be better. If your expenses are low, the trading allowance may be simpler.
Why record keeping matters
Good records make it easier to claim the right expenses. They also make your Self Assessment tax return much easier to complete.
You should keep:
- receipts
- invoices
- bank statements
- mileage logs
- bills
- supplier statements
- records of cash payments
Keeping records throughout the year can save a lot of time. It also reduces the risk of missed costs, wrong figures or last-minute stress before the tax return deadline.
When can an accountant help?
Many sole traders are unsure what they can and cannot claim. Some people claim costs they should not claim. Others miss valid expenses and pay more tax than they need to.
An accountant can help you understand which costs apply to your business. They can also help you split personal and business costs correctly.
An accountant can be useful if:
- you work from home
- you use your vehicle for business
- you have lots of receipts
- you buy tools, stock or equipment
- your income changes each month
- you are unsure about VAT
- you want help with your tax return
- you want to avoid mistakes with HMRC or don’t have the time
Good advice can save time and give you more confidence. It can also help you plan ahead, instead of only thinking about tax when the deadline is close.
Need help with your sole trader expenses?
Jems Accountancy supports sole traders, freelancers and small businesses with bookkeeping, Self Assessment tax returns, VAT, payroll and business accounts.
If you are unsure what expenses you can claim, our team can help. We explain things clearly, keep the process simple and help you stay organised throughout the year.
Contact Jems Accountancy today to find out how we can support your sole trader business.
