Tax Advice

What Allowable Business Expenses Can I Claim Back As A Sole Trader?

31 August 2017

If you’re a sole trader, you will incur costs as a result of running your business. Whether you’re a plumber, a blogger or a baker, you need to spend money to make money.

However, some of the costs that you spend on your business, you can claim back as an allowable business expense.

Well, as long as they’ve been incurred wholly and exclusively for business purposes.

To claim back an expense, you must prove that is was a business purchases by keeping hold of your receipts and invoices to back it up.

So no buying fancy cupcakes to treat yourself on the company card… unless you’re bulk buying them as stock to sell on for the whole and exclusive purpose of the business!


business expense tax claim


What is the benefit of claiming as an allowable business expense?

We’re sorry if we seem like we’re dumbing things down a bit much. But even Einstein himself struggled with tax. (True story.)

So we want to make this simple.

As I’m sure many of you know, but for those who don’t here is the big reveal.

You don’t get taxed on what you claim as an allowable business expense. You only get taxed on the profits your business makes.

Therefore, if your business turnover is £50,000 and you claim £15,000 in allowable business expenses, then you only pay tax on the remaining £35,000.

We think that’s a pretty good benefit!


tax claim business sole trader


What are allowable business expenses?

HM Revenue & Customs have kindly produced a rather monumental 133-page guide detailing everything you need to know about expenses.

But we thought we would save you the trouble and condense those 133 pages down into a short guide on the most common allowable business expenses. (Along with some of the most common pitfalls that go with them.)


Office Costs

Whether you work from home or you have your own office, you’ll need supplies and equipment to keep your business up and running.

What you can claim for:

  • Phone and internet bills
  • Printing supplies
  • Computer software
  • Stationery
  • Rent, rates, power and insurance costs

What you can’t claim for:

People tend to get confused when they work from home.

The confusion normally comes from the overlap of things like the phone bill, broadband, utilities and council tax. Things they use for both personal and business.

As these aren’t used wholly and exclusively for business purposes, only a proportion of it can be claimed back.

There are two options for claiming these as allowable business taxes:

  1. You can claim it as a simplified expense at a flat rate.
  2. You can work out a proportionate cost of how many hours each thing is used for business purposes and calculate it against the total cost.


Travel Costs

As a sole trader, you might be working from different places. Needing to see clients, secure stock for various locations, the list goes on and on.

There are many reasons why you might need to travel and you a number of means to do so. Some of these can be claimed back on as an allowable business expense, others can’t and a few are a bit iffy.

What you can claim for:

  • Vehicle insurance
  • Fuel
  • Repairs and maintenance
  • Parking
  • Hire charges
  • Vehicle license fees
  • Breakdown cover
  • Public transport fares
  • Hotel rooms

What you can’t claim for:

  • Non-business driving or travel costs
  • Fines, including parking tickets and speeding tickets
  • Travel between home and work
  • The vehicle itself (see capital allowances and cash basis accounting)

The tricky part of claiming for travel costs is normally in relation to two different aspects.

The first is the confusion over not getting to claim tax back on the fuel you use to travel to and from your place of work. A lot of people think that this is an allowable business expense. Unfortunately, it’s not.

The second is when people tend to go a little over the top with their choices on accommodation or travel tickets.

You can’t book a Hilton penthouse suite and work through the entire room service menu when a standard room will do!

There aren’t many guidelines on where an expense will fall into personal from business in these sorts of situations, but you can normally guess yourself. Don’t go overboard or you might end up paying the bill yourself.

Again, as a sole trader you might be using your personal car as your business car so certain miles will be for business use. And again it’s a matter of either working out the proportional costs or claiming the flat rate simplified expense.


Clothing Costs

Dressing to impress is a part of business, especially if you are involved in meeting with clients or the public.

What you can claim for:

  • Uniforms
  • Protective clothing needed for work
  • Costumes – for entertainers

What you can’t claim for:

  • Your everyday clothing

Dressing appropriately for work is important. Unfortunately, you can’t claim the new suit as a business expense.

Only clothing that is to be wore as a uniform or as protective clothing can be considered an allowable business expense.


Other common allowable business expenses

We’re running out of space in this article so here’s the whistlestop tour of the other key points from the 133-page expenses monster doc.

  • Staff Costs, including salaries, bonus, pensions, training
  • Stock, raw materials, production costs to sell on
  • Insurance, accountants, banking and other financial costs
  • Advertising and marketing


business tax claim expense


How To Claim Allowable Business Expenses?

If you plan to claim back expenses, the important thing is that you keep records of everything.

If you don’t have records, it’s going to be a struggle to prove each expense if anyone ever asks.

To claim back expenses, simply add everything up for the entire tax year and put the total in your Self Assessment Tax Return.

You don’t need to send the proof of your expenses but it’s strongly recommended that you keep them for seven years in case they are ever required.


We Can Help

It’s not easy keeping tabs on all your expenses and figuring out what is tax allowable and what isn’t.

At Tax IQ we specialise in helping freelancers, contractors and small businesses get their finances in order. We take care of everything from personal tax returns and payroll to business accounts and expenses.

To find out how we can help save you money through expenses, get in touch with our team today.