What a Sole Trader Needs to Know About Expenses

Sole Trader

As a sole trader, you will pay personal tax and National Insurance contributions (NICs) on your profit. This is the income received by your business, less allowable business expenses. It’s important to claim all your business expenses as this can have a significant effect on the amount of tax you pay, and therefore the amount of money you take home.

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All expenses you claim need to be incurred “wholly, exclusively and necessarily” in the course of your business. As a general rule, an expense should allow your business to make more money than you spend.

If there is both a personal element and a business element to your expenses, you must only claim the costs you incurred for business. If you can’t separate the personal and business cost, you will not be allowed to claim the expense.

You must keep accurate records of your business expenses, including documentation like invoices and receipts as it’s vital that you can support your expenses with evidence if asked to by HMRC. You’ll need to keep all documents for at least six years after the end of the tax year they relate to. Using web-based software like FreeAgent makes record keeping much easier.

What expenses can sole traders claim?

It would be impossible to write an exhaustive list of all the expenses you might be able to claim as a sole trader, but here’s a list of common things that might apply to you. If you’re not sure if you can claim an expense, please talk it over with your contractor accountant.

Labour costs

If you employ staff or engage sub-contractors, all the costs involved are allowable business expenses. This includes agency fees and advertising costs for recruiting employees as well as their salaries, bonuses, pensions and other benefits. For subcontractors you can claim for the full amount of their invoices.

Travel expenses

You can claim for the whole cost of travelling for business. This may include the cost of running a vehicle, which you could either claim using HMRC’s mileage rates, or the actual business cost of running the vehicle. If you’re claiming the “actual costs” care should be taken to ensure you only claim the business costs, as it’s likely that there will be some element of personal use. If in doubt about which method to use, ask your contractor accountant for more information.

Business Premises

You can claim for the cost of keeping and maintaining your business premises, including rent, utilities, insurance and security. If you use part of your home for business you can claim the business proportion of the costs.

You can also claim for the cost of running your office, including stationary, printing and phone calls. Again, if you’re making business phone calls from home on a personal line, you can claim for the proportion of the cost incurred for business.

Business equipment

The cost of equipment like tools, protective clothing and computers is allowable, including costs for upkeep, repairs and replacements as necessary. You can’t include things like office furniture, as these count as fixed assets.

Professional fees

Your accountancy fees, as well as fees for solicitors, surveyors, architects and other professionals are all allowable as business expenses. Obviously, they need to be incurred for business purposes.

Marketing

This includes the cost of advertising in newspapers, mail shots to potential clients, the cost of setting up and maintaining your website and any online marketing costs, for example “pay per click” adverts on social media.

You can also claim for small gifts to clients, as long as they cost less than £50, don’t include food, drink, tobacco or cash, cannot be exchanged for cash, goods or services and include a prominent advertisement for your business.

Work related training

You can claim for the cost of updating and maintaining the skills you need for your current business. However, you can’t claim for the cost of obtaining new skills to allow you to branch out. The cost of training must relate to income currently being generated by your business.

Subscriptions to professional bodies

You can claim for annual subscriptions to certain professional bodies and societies, if they are relevant to your business. A list of approved institutions can be found here.

Expenses sole traders are specifically not allowed to claim

There are some expenses that you’re specifically not allowed to claim, even though you might think they should count as business costs. These include:

Business entertainment and hospitality

This includes meals or events involving more than one person that are held with third parties such as clients or customers. This also includes other events such as theatre trips or sporting events.

Fines

Any fines imposed for breaking the law, for example speeding or parking fines, are not allowed.

Capital expenses and fixed assets

The cost of items you have bought for long-term use, like office furniture or vehicles, are classed as fixed assets and cannot be deducted form taxable profits in the same way that expenses can. Check with your contractor accountant for information about capital allowances.

If you have any questions of we can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.com.

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