What business expenses can a sole trader claim?

As a self-employed sole trader, claiming as much tax relief as possible will no doubt be one of your biggest priorities. All one-man-bands are taxed on their hard-earned profits and when you work for yourself, the last thing you want is to pay more tax than is necessary. In this guide, we ensure you're aware of what expenses you can claim against your income so you pay the right amount of tax as a sole trader – but not a penny more!

It doesn’t matter whether you’ve been self-employed for 12 months or 12 years, all sole traders are entitled to claim for allowances and expenditure relating to their business. If you are interested in tax-saving opportunities as a sole trader, read on.

What is tax relief?

Tax relief is something that you can do or claim to reduce your tax bill. In the case of this guide we focus on the expenses you can claim against your sole trader income. Business expenses will reduce your profits and therefore the tax you have to pay when filing a self-assessment tax return with HMRC.

Keen to know what expenses are tax deductible as a sole trader? Read on as we disclose the main running costs for your business that are tax-deductible.

What is tax deductible as a sole trader?

Travel and motor expenses

Claiming travel expenses is a legitimate expense, but there are some aspects of your mileage and travel that you must take into account as a sole trader.

In most cases, sole traders will not have a vehicle that’s designated exclusively for business use. You might use your vehicle to meet customers and suppliers but it’s highly likely that it will also be used for other purposes, such as doing your family grocery shopping, school runs and so on. That’s why allowable business expenses for vehicles are only permitted for the business element of fuel, parking, repairs, servicing, breakdown cover and insurance. Crucially, whne calculating the business element, you can't include travel between home and work. Any speeding or parking fines incurred can't be dedicted.

If you do not want to claim the actual expenses of buying and running a vehicle in your business, you can use the simplified method which is to claim business mileage. You can claim for 45p per mile for the first 10,000 business miles. Anything over this figure will be claimed at a rate of 25p per mile. You can also claim business expenses for any other business-related travel costs, such as train, air or taxi fares for business purposes, hotel rooms e.g. following an industry seminar or conference and meals during overnight business trips.

Buying or leasing vans and cars

Self-employed car expenses are an important talking point for any sole trader. You might be wondering whether you can claim the cost of buying a car or van for exclusive work use. If you buy a car or van through your business, it will be listed as a fixed asset in your accounts as a form of plant and machinery, it will therefore not be shown in your profit and loss account and reduce your net profit. Tax relief is instead claimed through capital allowances, which can be claimed on the value of your purchase and reduce your taxable profit.

If you choose to lease a car rather than buy one for your self-employment, you can opt for one of three lease options:

• Hire Purchase
• Finance Lease
• Operating Lease

Each of these methods come with their own set of rules on how you treat them in your accounts, it's essential to seek professional guidance from your accountant before you commit to any of the above so you can understand the best one for you and your business.

Tools and other equipment

If you are a self-employed builder or mechanic, or another trade that relies on tools and machinery to do their job, it’s possible to claim back tax on replacing and maintaining your essential equipment. You are entitled to claim tax relief when you first purchase the item either thorugh capital allowances or as an expense, depending on what the asset is.

Household expenses

If you work from home as a sole trader, you should be able to claim a portion of your household bills for working from home. Your claim can be based on your total household bills, the area of your home you’ve used and the duration you’ve used it for business purposes. Or, you can calculate you claim using the simplified method which is a monthly rate based on the number of hours you work from home.

What constitutes a tax deductible household expense?

There are many self-assessment expenses you can claim if you work from home, including:

• Mortgage interest (not the capital repayment aspect of your mortgage)
• Rent
• Council tax
• Electricity, gas and heating
• Some property repairs

In order to work out the proportion of household expenses you can claim for each of the above costs, you will need to determine how many rooms at home you use for work purposes and how long you spend using it for work.

Let’s say for example your property has five rooms and you use one of them Monday to Friday for business and it has private use at the weekends. You would start by calculating a fifth of your household bills and then divide by seven days a week and times by five working days. This adjusts your claim to only reflect the business use of this room.

Are training courses tax deductible?

If you are keen to improve your knowledge and skills in your area of expertise as a sole trader, you may invest in training throughout the tax year. Training courses that are relevant to your business and aim to further your career, not to gain new skills, are an allowable business expense by HMRC. For example, if you are an electrician that needs to enrol in a refresher course to understand the latest regulations, this expenditure will be tax deductible.

If you are considering enrolling in a training course that will enable your business to enter an entirely new marketplace, this is not allowable.

As ever, if you are unsure whether a training course will be tax deductible for your self-employment speak to an experienced accountant for advice.

HMRC’s Simplified Expenses Calculator

If you opt to trade as a sole trader rather than a limited company, HMRC allows you to use their Simplified Expenses Calculator for some of your business costs. This calculator enables sole traders to calculate their business expenses using flat rates rather than working out the specific costs to your business. This is often simpler and quicker and doesn't involve collating all your personal bills. Flat rates can be used to cover:

• Business costs for vehicles
• Costs of working from home

The tool is by no means a detailed way of measuring business expenses. However, it can help you find out which way of calculating your business expenses will save you more money. The Simplified Expenses Calculator is not available to limited liability partnerships or limited companies.

Keeping track of your expenses

Don’t forget – if you are looking for an easier way to keep a record of your business expenses, saving hours of paperwork and administration week on week, check out QuickBooks, Xero or Dext software. Speak to our accountants today who can advise you what would work best for your business.

Need help with your expenses?

If you wish to discuss any of our bookkeeping or tax planning services, feel free to arrange a free initial consultation with our friendly and experienced team today on 01296 752014 or drop us a line using our online enquiry form.

Date published 15 Jul 2020 | Last updated 4 Oct 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.