Being a sole trader comes with a lot of perks, including being your own boss, not having to deal with copious amounts of red tape, and lots more.
We could spend all day talking about the perks of being a sole trader, but today we want to focus on one in particular: allowable expenses.
Allowable expenses are running costs that you don’t have to pay tax on. They’re a beautiful thing, but can also be a little bit sneaky as this process isn’t automatic. If you don’t know that something can be claimed back, you’re not going to claim for it.
A lot of sole traders assume that some allowable expenses aren’t for them, which means there could be loads of expenses you’ve been footing the bill for that you could be been offered relief for. We’re here to put an end to that.
To make sure that you’re always getting the best deal for your business, we’ve put together this guide on what expenses can a sole trader claim and how you can start your claim today. Let’s get started.
What are allowable expenses?
First things first, allowable expenses are like the running costs of your business that can be claimed during annual returns. For limited companies, allowable expenses reduce their Corporation Taxes. For Sole Traders, allowable expenses are claimed on your self-assessment tax return to reduce the amount of taxable profit you’ve earned that year.
For example, let’s say you’ve earned £40,000 this year through your business. But, because you read our guide on allowable expenses, you claim for £10,000 of allowable expenses. This means that the HMRC will only tax you for £30,000 of your income – massively reducing your tax bill.
There’s a keyword in here though and that’s ‘allowable’. You can’t claim expenses back unless they are allowed by the HMRC and fit the bill of being “wholly, exclusively, and necessary” for business purposes.
Over the years, many people have tried to fool the government into thinking their personal holidays, laptops, cars, etc are for ‘business purposes’.
You can’t just write off anything you want, there are a lot of restrictions. Plus, we assume that you’ll never want to pull a fast one on the HMRC and be put at risk of hefty fines or investigations. We’re here to do things by the book and let you in on the 100% legitimate expenses you can claim back for.
What expenses can a sole trader claim?
Before you get any ideas about submitting every kind of expense to the HMRC, let’s go over the allowable expenses that a sole trader can claim.
1. Building and utility costs
Any rent or mortgage that you have on your office building or place of work, counts as an allowable expense. But as well as the physical cost, there are also all the running and operating costs such as:
- Council tax bills
- Business rates
- Water rates
- Gas and water bills
- Insurance costs
- And security costs (such as CCTV, or security fees if you work in a protected office building).
Whatever bill that you get through to own/rent the space and operate it counts as a running cost for your business. So, they are classed as allowable expenses when working out your taxable profits as a sole trader.
In addition, you can also claim allowable expenses for any equipment repairs and maintenance you need to do in the space. For example, if you need to repair a damaged wall or roof, or if you need to have the space rewired to fit specific equipment.
Just ensure that all the above follow the golden rule: it must be for business purposes. Although having a hot tub in the middle of the office would be something special, it’s not an allowable expense.
If you’re working from home, you can claim a percentage of your home costs as work expenses. We’ll cover that in more detail below.
2. Protective gear and equipment
If you need specialist equipment or PPE clothing because of your work, including steel toe boots or hard hats in construction, or hazardous suits for chemical handling, you will be able to claim these costs back.
That’s a big win for safety.
3. Training and courses
If you want to enrol in courses or pay for training to upskill yourself or aid your business, then you can claim this as another allowable expense.
Just make sure they’re relevant and serve to actually advance your career or business. If you’re a plumber, the HMRC won’t pay for your ballet dance classes. Although if you could successfully combine plumbing and ballet, that will certainly be a fixture worth watching.
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4. Glasses & Contact Lenses
While directors of limited companies need to follow health and safety guidelines and therefore may be able to claim expenses on eye tests, sole traders do not have such a benefit.
That’s because there’s no legal requirement for you to follow health and safety requirements as a sole trader.
However, if you have been prescribed glasses or contact lenses specially for while you work – and you never need them at any other time. You may be able to claim the cost as a legitimate business expense.
5. Financial costs
This includes aspects like bank charges on business accounts or insurance policies. Again, this only relies on business use and doesn’t cover any personal loans or credit that you might have taken out.
Also, if you don’t have insurance yet, now is a good time to think about getting yourself insured as a sole trader.
6. Advertising and marketing
Advertising your business is a way of getting clients and customers your way, the essential lifeblood of a sole trader. Certain advertising or marketing costs, such as a website cost, can be expensed back as a sole trader, helping to ease the burden of getting your business out there.
This could include anything from:
- Printing leaflets or flyers
- Paid online advertising
- Fees for billboards or advertisements in local papers
- Website costs
- Radio or TV commercials
- Or more
If you’re not sure where to start with advertising, why not view the Business4Beginners blog for ideas and inspiration?
7. General office costs
Every minor office need, including pens, paper, ink, postage, post-its, highlighters, envelopes, and more can be classed as an allowable expense for your office, provided that you need it to keep your office running.
You’ll also be able to expense any office equipment that you might need for business purposes, including computers, printers, label printers, and more.
8. Accommodation and travel expenses
If you have to travel for work, you can claim back the travel and accommodation expenses for this journey. This includes the full fair of any train or bus ticket you paid, or mileage money if you’ve travelled by car.
These expenses come with the expectation that you pick out reasonable travel and accommodation. If you’re at a one-day conference, they won’t pay for a 5 night stay in the Ritz.
9. Staff or subcontractor costs
Running a business as a sole trader doesn’t mean that you have to be in it alone. As a sole trader, you can hire an employee or work with a range of contractors or freelancers on a one-off or recurring basis.
If you do hire staff or contractors, the good news here is that they also count as allowable expenses. This covers any costs related to staff or subcontractors, such as:
- Salaries
- Bonuses
- Pensions
- Benefits
- Agency fees
- Employer National insurance contributions
If you do use subcontractors, make sure that you catch up on IR35 legislation to avoid any fines.
10. Stock and materials
If you buy any raw materials or stock into your business, either to sell or make goods, then this can also be used as an allowable expense.
For example, if you sold baked goods, raw ingredients such as eggs, flour and milk would be allowable expenses. Alternatively, if you sold hand-made crafts within a high street store, any craft pieces you purchased from artists intending to resale also count as allowable expenses.
11. Shipping costs
We mentioned how everyday office costs count as allowable expenses, including printing costs and paper. But it’s worth clarifying in its own separate point that any shipping costs you pay for when selling goods also count as an allowable expense.
We could keep this list going, but the whole point is that if you are paying for something to help run your business – chances are it’s an allowable expense.
Can I claim for a business car lease as a sole trader?
If you’re a sole trader, you’re eligible to take out a business car lease instead of a personal one when selecting your business vehicle. Now, you can’t completely write off the cost of this lease, but you will be able to avoid paying any company car tax as there’s no legal difference between yourself and your company.
This could result in big savings – enough to get a free upgrade to a better model.
As well as not paying any company car taxes, you will be able to expense the running costs of your car. This is done through a flat rate where you multiply a set cost by the number of miles that you travel, or through the actual rate where you submit all calculations for MOT, fuel, and insurance costs. Find out more about getting a business car lease as a sole trader here.
If your car is used for personal use, this can get a little complicated though as you can only claim for the business use of your car. We’ve got some more information on how to expense for items that are used for both work and personal use later on in this article.
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What expenses can’t I claim for as a sole trader?
Because an allowable expense is something entirely for business purposes, you can’t claim for anything used for personal reasons. If something is used for both work and business, you can claim part of this expense back but not all of it. Read the next section to find out more about this process.
Other expenses that you cannot claim for include:
Parking fines or speeding tickets
You can claim for the running of your car, but not anything that you’ve personally done wrong.
Everyday clothes and workwear
Having a nice new suit will make you look the part and secure those all-important first impressions. But these clothes need to be paid for by yourself unless they are explicitly classed as PPE or required uniform.
Entertaining clients/guests
We’ve all seen the moment in a TV show where a fancy lunch is paid for by a business as an expense. And although there are cases where you can claim this back, I’m afraid it’s not true for sole traders. You’re not allowed any expense claims for entertaining guests or clients, so if you want to impress, that one is on your wallet.
If you’re ever unsure of what you can or can’t claim, we’d recommend talking to an accountant for more help. If you don’t have one yet, find the perfect match online with our reviews of the best online accountants.
What happens if I use something for both work and personal use?
Not every sole trader will have a dedicated office or work phone. If you’re just starting out, you might be one of the thousands of people who run your business from your own home. When it comes to allowable expenses, this doesn’t mean you can just write off all bills and rent. Instead, you’ll be able to claim a proportion of the costs that are dedicated to business use.
For example, if you can record how many calls on your phone bill are for business use, you can claim for those particular calls back while paying the remaining bill yourself. You can also claim for a fraction of your:
- Heating and electricity bills
- Council Tax
- Mortgage interest or rent
- Internet and telephone use
Depending on how much of your home time is spent on business. In some cases, you can also use the number of rooms if you have a dedicated office set up inside your home.
For example, let’s say you live in a 4 bedroomed house with one room set up as your office.
This means ¼ of the rooms are for business use, allowing you to claim for ¼ of all household bills. So if your yearly internet usage is £400, you could get £100 back.
To help you calculate this, HMRC has a simplified expenses tool to remove all of that hard maths work.
How do I claim for my allowable expenses as a sole trader?
Sole traders will claim for allowable expenses when they fill out their annual self-assessment tax return. As with any return, you need to ensure that the information you have provided is accurate, correct, and on time; otherwise, you could be faced with some hefty fines or penalties.
For expenses you want to claim back, make sure that you keep a record of them and their receipts to help fill in your tax return when it’s due. We’d also recommend getting the help of an accountant here to make sure all the information is spot-on.
Do I need an accountant to claim for my expenses?
No, you don’t need an accountant to submit your expenses and your tax returns. As a sole trader, you can take care of your entire financials by yourself and save yourself the extra bill.
If you want to take care of your accounts by yourself, we’d recommend taking a look at choosing accounting software to make this a lot easier. To help make this choice an easy one, we’ve picked out some of the best accounting software for sole traders here.
Although yes, you technically can claim for these expenses by yourself, our professional recommendation is to make sure that you have an accountant on hand to check your books and ensure it’s alright. This is especially important for making sure you’ve not missed any expenses you could be entitled to.
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Can you claim expenses if you use a tax-free trading allowance?
This is where things may get a little confusing for sole traders, particularly if you’re just starting out. Each year, you can earn up to £1,000 from property or trading tax-free. If you’re earning less than the allowance, you won’t have to register for self-assessment tax returns unless you want to voluntarily for it for benefit or maternity allowance reasons.
You can’t use both the tax-free trading allowance and allowable expenses simultaneously. If your income will be above £1,000 for the year, it’s normally best practice to ignore the tax-free trading income and opt for allowable expenses instead. However, it’s always best to speak to an accountant or financial advisor about your own unique circumstances.
What expenses can a sole trader claim? – A summary
Sole traders can claim a variety of expenses, including travel costs, equipment, training, and even utility or rent costs, provided that it’s for business use.
If something is used for both home and business, such as when a business is being run from home, then sole traders will be able to claim back a percentage of these costs based on how much is for business use.
These costs are claimed when sole traders fill in their annual self-assessment tax return and can provide much-needed relief to keep your business up and running in its best form. To make sure that you’re claiming for the right items, and to find any expenses you didn’t know you could claim for, we’d always recommend speaking to an accountant to help complete your returns.
For any other tips, news, or advice on running your business, we’ll be here for you every step of the way at Business4Beginners. Make sure you turn notifications on, so you never miss an update.
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