Self Employed Expenses
What are allowable expenses?
Essentially expenses are costs that you’re able to deduct from income to calculate your taxable profits.
For example, if you earn £40,000 in a year and can offset £10,000 in expenses during the same period you will pay tax on £30,000. This would be your taxable profit. Allowable tax expenses can of course significantly reduce your tax bills.
What business expenses can I claim for as a sole trader?
Generally, you are able to claim expenses for any product or service used to run your business as a sole trader.
All these expenses must relate to your business and not include any private expenditure.
Examples of expenses that can be included (this is not exhaustive) are:
Office costs – This includes everything from stationery, rent, postage and utility bills.
Travel expenses – From vehicle insurance to fuel, parking and hotel rooms, to train fares and breakdown cover. This assumes you travel as part of your sole trader business but if your only travel is to an office and back home then that won’t count.
Clothing – This only covers uniforms and anything you need to wear to carry out your work as a sole trader. Examples would be, protective clothing, or costumes for actors and entertainers. You aren’t able to claim for everyday clothes / anything that would be part of a normal wardrobe, even if you only wear these items for work.
Reselling goods – If you’ve bought things to sell on as part of your business, including stock or raw materials, those are included in your allowable expenses.
Legal and financial costs – You can claim for the fees spent on hiring accountants or professional services such as lawyers, as well as for bank charges or hire purchase interest.
Marketing and advertising and subscriptions – Allowable expenses in this category include free samples, website costs and advertising including via social media.
Entertaining clients and suppliers – None of these costs of entertaining are allowable.
Training courses – Providing the courses relate to your business and improve your skills or knowledge then you are able to claim allowable expenses. It does not include courses taken to help you expand into new areas of business.
Mixed Use Expenses
You won’t be able to claim against the full amount of the expense, only against the proportion you use for business purposes.
For example, if you don’t have a separate business phone, you likely use your mobile phone for both business and personal reasons. If you spend £100 in a year on your phone bill, if £30 of that bill is for personal calls and £70 on business, then you can claim for £70 of expenses.
The same would apply to home phone, broadband costs and possibly the use of a private car.
Simplified expenses are a useful way of reducing the number of records you need to keep. They make claiming expenses much easier by using a flat rate for expenses. The flat rate method can be used for expenses such as vehicles or working from home. It means that you won’t need to work out the proportion you use for the business.
Whatever expenses you intend to claim, if your not sure, ask your accountant first.