Sole Trader Expenses Guide – Reducing your tax bill with allowable expenses
Understanding what expenses can be offset against your income will help you bring down the amount of tax you pay to HMRC, meaning you keeping more of that hard earned cash.
Here, we have put together some key expenses that you should consider claiming. But remember not to push your luck, everything claimed must be a requirement for your work!
Everything you claim must be backed up with a receipt.
Uniform or work clothing
Do you wear a uniform exclusively for work? If so then you can claim the cost back to reduce your tax liability. They key thing here is that the clothing must not be used for everyday wear, it has to be specifically for work. Further information can be found on the GOV.uk website.
Travel and expenses incurred in the running of your vehicle
The costs of running a vehicle are allowable for Sole Traders but there are a few key things to be aware of. If you are using your vehicle for both business and pleasure then you can only claim the elements related to the business aspect. Travelling between home and work is not included.
Another option is to claim for the business miles you complete in your own vehicle. We can help you with this at the current HMRC rates.
Other methods of travel can also be claimed, for example train, tube, taxis and air fares.
Buying or leasing a vehicle
You may need to travel to client’s premises and carry equipment with you. In this case you may need to purchase a commercial vehicle. If you did this through your business then it would be an asset and you can claim capital allowances, and reduce your tax liability.
If you do not purchase a vehicle outright, you may consider using hire purchase, finance lease or operating lease.
It is always advisable to seek further specific advice when purchasing a vehicle through your business.
Tools and equipment
Some trades require the purchase of tools or equipment to be able to carry out the job. These are allowable expenses to offset your income.
Working from home
You may be required to do some or all of your work from home. If that is the case you can claim a portion of your household bills.
There are four simple steps to follow:
- Count up all the rooms in your home
- Identify the rooms you work in, and for how long (work out a percentage for each room used)
- For each bill, evenly divide the cost by the number of rooms*
- Apply the percentage of work use to the relevant room costs
*Common costs you can apply this calculation to: heat, electricity, mortgage payments (but only interest not capital), home insurance (if it also covers your business), repairs and cleaning bills that apply to the whole house, rent, and council tax.
Training
Any cost of updating an existing skill is allowable, but you cannot pay for training in a completely new skill.
HMRC help
You may want to see if you can use HMRC’s simplified expenses calculator, as it may allow you to use a flat rate rather than claiming the exact amounts. This can cover business costs for cars and vans, and working from home.
This tool is for guidance only and we are happy to offer more specific advice based on each individual’s situation.
How can Taxevo help?
We’re a group of expert small business accountants who specialise in the needs of Sole Traders. From expenses to advice on making the most from your money, our team can help. Get in touch today to find out more.
