Claiming expenses as a sole trader

Claiming expenses as a sole trader

By Published On: 6 October 2021Categories: Sole Trader, TaxTags:

If you’re considering becoming a Sole Trader you might be wondering what expenses you’re able to claim.

In this blog we explore just that, to give you an idea what it’s like to operate as a sole trader, and whether it’s the right business model for you.

What is a sole trader?

A sole trader is a person who owns and runs their business as an individual, and whose company isn’t classed as a separate legal entity from them as a person. For more information and a detailed look into what a sole trader is and how they operate, take a look at our blog.

Are sole traders entitled to claiming expenses?

Absolutely! Some people believe that you have to have your own Limited Company in order to be able to claim expenses, but that simply isn’t the case. Whilst you’re not able to claim as many expenses as someone who’s limited, you’re still entitled to claim certain tax reliefs.

What is tax relief?

By claiming tax relief on your business expenses (so long as they’re allowable) you’re able to keep hold of more of your sole trader income. Tax relief can be used to offset against your taxable profits, when you file your self-assessment tax return with HMRC.

If you’re VAT registered you’ll also be able to claim the VAT you’ve paid on goods and services for your business in your quarterly returns.

What can you claim as an expense?

Uniform or work clothing – If the uniform you wear for your work is exclusively for this use, then you’re able to claim the tax back. However, if the clothing could also be used for everyday wear, (and not therefore purely for the purpose of completing your work), then it won’t be eligible for a work clothes tax rebate. You can read more about this on the website.

Travel and expenses incurred in the running of your vehicle – Whilst you are able to legitimately claim your travel expenses as a sole trader, there are some aspects you need to be aware of. Commonly as a sole trader you’ll use your vehicle for both work and personal use, therefore you’ll only be able to claim for the elements that enable you to complete your job (such as fuel, parking, repairs, servicing, breakdown cover and insurance). Your travel between home and work is not included, nor are any speeding or parking fines.

One option you do have is to claim your business mileage. For the first 10,000 miles travelled in any tax year you’re able to claim 45p per mile, then any additional miles are 25p.

You can also claim for train, plane, or other travel costs, so long as the journeys are solely for business purposes.

Buying or leasing a vehicle

If your job requires you to travel to your client’s premises and you have a number of tools, you’ll more than likely need a van or car. If you purchase one for your business, it will be listed as a fixed asset and classed as a form of ‘plant and machinery’. This will allow you to claim capital allowances on the value of the vehicle, thus reducing your taxable profit.

If you decide to lease rather than buy, you can do so with the following three options:

  1. Hire purchase
  2. Finance lease
  3. Operating lease

Each of these options carry their own rules and regulations when it comes to what you’re able to claim back in tax, so it’s always advisable to discuss your plans with an accountant before making any purchases. For more information on company cars, take a look at our free guide.

Tools and equipment

It’s possible to claim tax relief on the purchase and maintenance of tools and other equipment that is required in order for you to complete your job. When first purchasing equipment, claiming relief will be in the form of capital allowances or as an allowable expense, depending on which basis you’re using, again your accountant will be able to advise you on this.

Household expenses

If you work from home you’re able to claim a portion of your household bills, and the amount you can claim is based on your total bills, the area in which you work and the duration you’ve used it for.

To be able to claim you must make the space in which you work exclusively for this purpose only during working hours, which also allows you to avoid paying Capital Gains Tax when you come to sell your home.

The following expenses are classed as tax deductible:

  1. Mortgage interest (excluding the capital repayment aspect)
  2. Rent
  3. Council tax
  4. Electricity, water and heating costs
  5. Property repairs and cleaning costs

To calculate the amount you can claim you’ll need to decide how much space your work area takes up from your total overall home. For example if your home has ten rooms and you use one for work, you’ll need to calculate 10% of your household expenses as listed above, divide it by seven, then multiply it by five (or the number of days you work). This will give you the amount you can claim.

Training courses

Training courses are deemed as an allowable expense, but it must be relevant to your chosen field of expertise and give you the opportunity to further your career. For example, if you were a plumber and needed to complete training in order to learn the latest safety information, this would be claimable.

HMRC’s tool to help you see if an expense is claimable

HMRC’s simplified expenses calculator allows you to see if your business costs are allowable. It allows you to determine your business expenses using flat rates rather than calculating it as a specific cost to your business. Flat rates can be used to cover:

  • Business costs for cars and vans
  • Working from home costs
  • Living costs from running your business from your home

This tool is to be used as a guide rather than an instructional piece of legislation, and as always we advise you running your costs past an accountant to see what you’re able to legitimately claim as a business expense.

How can Vantage help?

We are expert small business Sole Trader accountants with offices in Dorset and Hampshire. If you want the peace of mind that all the legal bits are under control plus the best advice to help you to save more of your hard-earned income, then Vantage Accounting can help. We can also advise you on whether you’d be financially better off as a Limited Company or a Partnership.

For a fixed monthly fee, we will submit all the necessary paperwork accurately and on time with HMRC. We’ll be available for advice whenever you need it and help you set up and run your business in the most tax efficient way as possible.

We know tax and accounting inside out, so you don’t have to; trust us to give you the best advice and you can focus on running your business. Get in touch to find out more today.

Note: All the information and advice in this blog post was correct at the time of writing.

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