What business expenses can a Sole Trader claim?

One of your top priorities as a self-employed sole trader will undoubtedly be collecting as much tax relief as possible. All one-man bands are subject to taxation on their hard-earned earnings. When you’re self-employed, the last thing you want to do is pay more tax than is required. We’ll show you how to make sure you pay the correct amount of tax as a sole business — and nothing more!

Whether you’ve been self-employed for a few months or a few years, all sole traders are eligible to claim allowances and expenses related to their firm. If you’re a lone trader looking for ways to save money on taxes, keep reading because we’ll reveal the most common business costs you can claim with HM Revenue and Customs (HMRC).

What is tax relief, exactly?

When completing a self-assessment tax return with HMRC, you can use tax relief to offset your taxable profits. There are income tax allowances for self-employed individuals that you should be aware of as a self-employed solo trader. You can reclaim more of your hard-earned money and pay a bit less income tax by claiming tax relief on business expenses — that is, costs directly related to the operation of your firm.

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If your business is VAT-registered, you can even refund the VAT you paid on products and services in your quarterly VAT returns.

Do you want to know what expenses as a lone trader are tax deductible? Continue reading to learn about the primary operating costs for your business that you might claim for tax relief.

As a lone trader, what expenses are tax deductible?

Uniform or work clothing-related claims

First and foremost, you can deduct the cost of uniforms that are utilised exclusively for your business. On the GOV.uk website, you may discover information about the HMRC laundry allowance.

Simply put, if your clothing might be worn as part of your “daily wardrobe” and is not solely for business purposes, you are not eligible for a work clothes tax credit. It doesn’t only apply to your company’s branded clothes. You can claim tax reduction for tradesmen’s safety clothing, and entertainers can even claim tax relief for stage costumes.

Expenses for travel and vehicle maintenance

In the perspective of HMRC, claiming travel expenses is another acceptable allowance, but as a single entrepreneur, there are particular factors of mileage and travel that you must consider.

In most circumstances, sole traders do not have a vehicle dedicated solely to their firm. Although you may use your vehicle to travel to meet customers, it’s very probable that it will also be utilised for other things, such as food shopping with your family.

As a result, only the business portion of gasoline, parking, repairs, service, breakdown cover, and insurance are allowed as appropriate business expenses for automobiles. It does not, however, compensate you for travel between your home and work, any speeding or parking tickets, or other non-business driving expenses.

If you don’t want to claim the actual costs of purchasing and operating a car for your business, you can adopt the more straightforward approach of claiming business mileage. For the first 10,000 business miles, you can claim 45p per mile. Any mileage in excess of this amount will be charged at a rate of 25p per mile.

You can also claim business expenditures for any additional business-related travel expenses, such as train, air, or taxi fares for business purposes, hotel rooms (for example, after an industry seminar or conference), and meals during overnight business travels.

Purchasing or leasing vans and automobiles

For any lone trader, self-employed car expenses are a major topic of discussion. You might be asking if you can deduct the cost of purchasing a car or van for sole use at work. If you purchase a car or van through your company, it will be categorised as a fixed asset, or plant and machinery. This permits you to deduct capital allowances from the purchase price, lowering your taxable profit.

You have three leasing alternatives if you prefer to lease an automobile rather than buy one for your self-employment:

  • Hire Purchase
  • Finance Lease
  • Operating Lease

Each of these ways has its own set of guidelines for how you should approach them in your accounts, so talk to your sole trader accountant UK before committing to any of the above so you can figure out which is best for you and your company.

It’s possible to claim back tax on replacing and maintaining critical equipment if you’re a self-employed builder or mechanic, or any other sole trader who relies on tools or machinery to accomplish their business.

You can also claim relief when you first buy the item, which can be done either through capital allowances or as an allowance expense, depending on the basis you use.

RELATED: What to consider when becoming self-employed or a sole trader

The cost of living

Even if your business consumption is minimal, you should be able to claim a portion of your domestic expenditures if you operate from home as a sole trader. Your claim should be based on your overall household costs, the space you’ve utilised for business operations, and the length of time you’ve used it.

Make sure the room(s) you’re using are solely for business purposes at the moment, but there’s no reason you can’t let the kids do their homework in your office at the end of the day. This will prevent the room from being classified as a business property for rating purposes, as well as avoiding paying Capital Gains Tax when you sell your home.

What qualifies as a deductible household cost for tax purposes?

If you work from home, you can claim a variety of self-assessment expenditures, including:

  • Interest on a mortgage (not the capital repayment aspect of your mortgage)
  • Rent
  • Council Tax
  • Water
  • Electricity
  • Heating
  • Property repairs
  • Cleaning costs

To figure out how much of your household expenses you can claim for each of the aforementioned items, you’ll need to figure out how many rooms at home you use for work and how much time you spend doing so.

Assume your property contains five rooms, one of which you use for business Monday through Friday and for private usage on weekends. You’d start by dividing a fifth of your mortgage interest, rent, Council Tax, utilities costs, and so on by seven days a week and multiplying by five working days. This changes your claim to just reflect the room’s business use.

Is it possible to deduct training costs?

You can invest in training courses throughout the tax year if you want to increase your knowledge and abilities as a sole trader in your area of specialisation so that you can provide the best possible service to your customers.

HMRC considers training courses to be a permissible business expense, which is good news for you. The training courses should be relevant to your current job and targeted on helping you advance your career. For example, if you’re an electrician who needs to take a refresher course to keep up with the latest rules, you can deduct this expense.

This is not permitted if you want to enrol in a training course that will enable your company to enter a completely new market.

If you have any questions about whether a training course will be tax deductible for your self-employment, please contact us by phone or email.

Simplified Expenses Calculator from HMRC

HMRC allows you to use their Simplified Expenses Calculator for certain of your business costs if you choose to trade as a sole trader rather than a limited company.

Instead of working out the precise costs to your firm, this calculator allows sole traders and business partnerships to assess their business expenses using flat rates. Flat rates can be used to cover the following:

  • Vehicle costs in the workplace
  • Working from home costs
  • The cost of living in your place of business

The tool isn’t intended to be a comprehensive method of calculating business expenses. It can, however, assist you in determining which method of estimating your business expenses will save you the most money.

Limited liability partnerships and limited firms are not eligible to use the Simplified Expenses Calculator.

Don’t forget to check out our competitive pricing for Dext software if you’re searching for an easier way to keep track of your business spending, saving hours of paperwork and administration week after week.

This digital expense scanning feature allows you to capture images of expense receipts using the Receipt Bank mobile app, ensuring that you never lose out on a penny of potential tax relief in your next self-assessment tax return.

What is the best way to keep track of my lone trader business expenses?

If you were an employee before starting your own business, you may have had to register costs with your employer. Now that you’re in charge, you’ll have to do the same for your company (and any employees if you have them).

Keeping track of your expenses, such as business mileage, is critical since HMRC may refuse to validate your expense claim if you do not provide a breakdown of journeys and mileage covered.

We recommend keeping track of all business mileage on a spreadsheet and updating it throughout the year. If you’re claiming tax relief for fuel when driving a company car, you’ll need to maintain all of your receipts.

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