Understanding Allowable Expenses for Sole Traders

Allowable expenses for Sole Traders and Partnerships

Many sole traders do not know what they can and can't claim for in their business. So I thought I would list them in this blog.

It is important to understand that any expenses you want to claim for your business, must be wholly and exclusively for the business.

You cannot claim for anything you use personally. So, if you use e.g. a mobile phone both personally and for business, you can only claim the business proportion.

So lets make an easy list for you to follow!

What you can claim

There are several types of expenses that sole traders & partnerships can claim. Understanding these categories helps ensure you take full advantage of the deductions available to you.

Office costs

• printing
• stationary
• postage
• phone bills
• Internet bills
• Small office equipment
• Software
• Rent
• Utilities
• Insurance

Motor costs

You can choose to either claim for all of your motor costs including

• Fuel
  
• Repairs
• Insurance
• Hire charges
• Servicing
• Breakdown cover
• Tax

Travel

• Parking
• Public transport
• Hotel rooms
• Meals on overnight trips
• If you have employees and reimburse their fines

Staff costs

• Wages/salaries
• Bonuses
• Pensions
• Benefits
• Emloyers national insurance contributions
• Agency fees
• Sub contractor/ outsourcing fees
• Training courses related to your business
• CIS subcontractor payments

Advertising, marketing and entertainment

• Adverts in newspapers, directories, mailshots, samples
• Website costs
• Staff entertaining

Repairs/ renewals

• Routine repairs
• Redecorating

Bank loans

• Interest on business bank loans

Bank charges

• Bank transaction fees
• Overdraft fees
• Credit card charges
• Hire purchase interest
• Leasing payments

Irrecoverable debts

• Amounts included in turnover but are unreclaimable, unpaid and written off. There are certain rules here and not available to those on cash basis.

Legal and accountancy fees

• Accountant fees
• Solicitor fees
• Surveyors
• Architects
• Professional indemnity insurance
• Other professional fees

Other costs

• Subscriptions
• Uniform
• Protective clothing
• Food and drink when travelling/ working away from your regular work place
• Other costs not listed elseware

What you cannot claim

A proportion of any personal use of any items listed above.

Office costs

• Some capital expenses which would be put through Captial Allowances instead for new equipment

Motor/Travel costs

• Parking/speeding fines
• Cost of buying vehicles (this comes under Capital Allowances)
• Travel between home and a regular place of work
• Meals other than for overnight trips
  

Staff costs

• Drawings - payments made to yourself. You are not an employee, you are withdrawing money from the business
• Personal pension payments - though these can still benefit you in terms of paying less tax if you are a higher rate payer
• Personal tax and NI payments
• Payments for non business related work

Advertising, marketing and entertainment

• Entertaining clients, suppliers and customers
• Hospitality at events

Repairs/renewals

• Improvements/ renovations (this is a capital expense)

Bank loans

• Loan repayments
• Paying off Overdrafts
• Finance arrangements

Bank charges

• Repayment of overdraft, loan or finance arrangements

Irrecoverable debts

• Any provision for irrecoverable debts
• Debts relating to fixed assets
• Debts not included in turnover

Legal and accountancy fees

• Legal costs of buying property
• Legal costs of buying equipment
• Fines for breaking the law

Depreciation

• Not allowed

Other costs

• Cost of washing uniform
• Donations
• Payments to clubs/charities/non political parties
• Non business expenses
• Cost of ordinary clothing
• Food drink at your normal workplace
• Working from home (heating, electricity, council tax, mortgage interest or rent). Please note, mortgage interest is only available if you have one room in your house dedicated wholly and exclusively for your business only.

Simplified expenses

Is a way of calculating some business expenses using flat rates, rather than working out the actual costs which can be more time consuming.

Simplified expenses are available for -

Motor expenses

Claim a flat rate per mile based on the type of vehicle.

Rates for 25-26 are -

45p per mile for cars and goods vehicles for the first 10000 miles, 25p above 10000 miles

24p for motorcycles

You cannot claim the actual costs for motor expenses, and simplified expenses. Once you choose how you want to manage expenses for your vehicle, you must stick with it until you change the vehicle.

You also cannot use Captial allowances ifyou are using flat rate expenses.

Use of home as office

You can claim a flat rate if you work from home at least 25 hours per month.

Rates for 25-26 are -

25-50 hours per month - £10pm

51-100 hours per month - £18pm

101 plus per month - £26pm

Flat rate covers a proportion of 

• Utility bills
• Mortgage/rent

You can still claim a proportion of council tax, insurance, telephone and broadband on top.

Business premises used partly as a home

In the event of e.g. renting a room or owning a B&B, you can a flat rate per person for non-business expenditure, which is deducted off your total expenses. Again, mortgage interest, business rates and council tax are excluded from the flat rate so can be claimed separately.

Rates for 25-26 are -

1 person occupancy - £350pm

2 person occupancy - £500pm

3 or more - £650pm

Trading allowance

If your expenses are under £1000 for the year, you can instead claim the trading allowance.

This is a tax exemption of £1000.

Meaning, if your profit is £20000, and your expenses £500. you would make a profit of £19500.

You could claim £1000 trading allowance instead of listing all your expenses and reduce your profit to £19000.

It also means, if your income is £1000 or under, you do not have to fill in a tax return.

What is cash basis?

You record income and expenses when money actually changes hands, not when you invoice or are billed.

So:

You count income when you’re paid
You count expenses when you pay them

Understanding Capital Allowances

Capital allowances are a key area of allowable expenses that often causes confusion. They relate to the depreciation of capital assets like equipment or vehicles, allowing you to deduct a portion of the asset's cost over time, so are for higher cost items such as a £1000 computer or £20000 car.

You can claim Annual Investment allowance of up to £1m per year on vans, plant and machinery. Resulting in you being able to claim most if not all of your purchase. This still reduces your profit and therefore tax paid.

It’s essential to keep detailed records and receipts for these assets to ensure you claim the correct amount and speak to your accountant/bookkeeper when you make large purchases.

Tips for Accurate Record Keeping

Accurate record-keeping is essential for maximising your allowable expenses. Here are some tips to help you stay organised:

1. Use dedicated business accounts for all transactions.
2. Buy personal items from your personal accounts.
3. Keep digital copies of all receipts and invoices.
4. Regularly update your accounting records to prevent last-minute stress.
5. Get help early if you feel overwhelmed.

Conclusion

I hope this blog has helped you understand what is and is not claimable. If you ever have any queries, please get in touch. It is always worth checking to see if you are missing any tax savings.

Always check the gov website https://www.gov.uk/expenses-if-youre-self-employed for the latest information.