What expenses can I claim as a sole trader?

Sole trader expenses

What expenses can I claim as a sole trader?

As a sole trader, the cost of anything necessary for running your business can be considered an expense.

That means you’ll pay less tax and keep more of your hard-earned money.

Understanding how to handle expenses is important to ensure you pay the right amount of income tax and avoid paying more than is necessary. However, if you’re just starting up as a sole trader it can be difficult to identify what is a business expense and what is a business cost.

What are expenses for sole traders?

As a sole trader, you can subtract all allowable expenses from your turnover before paying tax. For example, if your company earned £50,000 in a year and its allowable expenses added up to £5,000 then you would only pay tax on £45,000.

It sounds simple but the difficulty tends to arise in identifying just what ‘allowable expenses’ are. The rule of thumb when considering claiming for expenses is that they must be ‘wholly and exclusively’ related to the running of the business.

That means you must be able to identify between business expenses and personal expenses. For example, if you use a car for business meetings then the fuel for that can be claimed as a business expense but you could not claim for fuel used to visit a family member.

It’s also crucial that as a sole trader you keep clear and accurate records of your business income and expenses. That means recording every transaction and maintaining copies of receipts and invoices. This makes completing the annual self-assessment tax return much easier and minimises the chance of making mistakes.

What types of items can be considered as an expense for a sole trader?

Some common allowable business expenses that you can claim against your income tax are:

  • Office supplies such as stationery, postage, phone and internet bills.
  • Office equipment such as computers and printers.
  • Business premises such as rent, business rates, utility costs and insurance.
  • Transport costs for work (though not travel to and from work).
  • Raw materials and stock.
  • Marketing costs.
  • Professional insurance requirements.
  • Any special work clothing such as a uniform.

That list is not exhaustive and there are all manner of additional complexities when it comes to classifying expenses. HMRC can impose penalties for incorrectly claimed expenses.

Calculating expenses and completing tax returns can be complicated and stressful. That’s particularly so if you’re just starting as a sole trader or you’re simply busy doing what you do best – delighting customers. SQK Accountancy specialises in small business and sole trader accounting in the Manchester area. For advice and to find out more, contact us today.

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