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Top expenses for your self-assessment tax return
As a business owner, or self-employed individual, the last thing you want is to pay more tax than you need to. Knowing what allowable business expenses you can include on your self-assessment tax return is crucial.
By Catherine Heinen, FCCAAt TaxAssist Accountants, we calculate your tax bill from your business profits. Ensuring you are including everything you spend your money on will mean you will pay less tax.
Keeping accurate records helps you understand the financial health of your business and reduce your tax bill. Making Tax Digital (MTD) compatible software is great for saving you time and giving you real time information.
HM Revenue & Customs (HMRC) allows self-employed business owners to deduct certain business expenses to reduce the trading profit. A reduction in your trading profits will also reduce your tax payments. This applies for both sole traders and limited companies.
Within this guide, we will help you to pay the right amount of tax and not a penny more! This article focuses on expenses for sole-traders. You can find our guide on expenses for landlords here and limited companies here.
Understanding Tax Deductions for sole traders
HMRC states no deduction is allowed for expenses that are not incurred wholly and exclusively for the purposes of the trade. Without going into too much detail regarding this complicated phrase, this means:
- Payments that are required for the business to trade are allowable
- Payments that are not connected to the trade are not allowable
- Payments that cover both the business and something else then it may not be allowable in its entirety, or may be allowable in proportion to the business aspect
Types of expenses
Different businesses have different expenditure, for example a taxi driver will have different expenses to a plumber. We’ve covered the main categories of expenses here. These expenses are generally deductible from business income to arrive at accounting, or trading profits subject to tax. You must take care to seek professional help to ensure you comply with HMRC's rules.
Examples of allowable expenses include:
Cost of sales
- purchases for resale
- raw goods for production
Staff costs
- salaries, overtime, bonuses
- staff training, uniforms and other staff costs. Please note that there are specific rules around uniforms, a business suit is not generally allowable for tax deduction.
- gifts and parties – if covered under trivial benefits rules they’re allowable
Premises costs
- business rates, building insurance and energy costs such as electricity, oil and gas
- working from home costs may be able to be included. There are two ways of calculating the costs:
- taking a portion of your household bills
- using the HMRC simplified flat rate
Repair costs
- replacing and maintaining equipment and tools. Some purchases may be capital expenditure and therefore instead of claiming the expenses, you’ll claim relief through capital allowances which are explained later in this article.
Admin costs
- office costs such as stationery and phone bills
- advertising and marketing costs such as website fees
- software costs (usually)
- business travel costs such as fuel, parking charges and bus, plane or train tickets. Where a plane ticket covers both business and personal use, the entire cost is not allowable.
- business insurance, such as public liability and professional indemnity insurance
- professional fees including legal and accounting. Some legal and accounting costs are not deductible, it will depend what the fee covers.
- subscriptions and membership
- training courses for a sole trader that’s relevant to your business and is enhancing your knowledge may be deductible. A course that is giving your new knowledge is not allowable. For more information, contact TaxAssist Accountants.
Finance costs
- bank charges, overdraft and credit card fees
- interest charges
Vehicle/Motor expenses
- Where sole traders don’t have a vehicle exclusively for business use, you must only include the business element of the vehicle costs (fuel, parking, repairs, servicing, breakdown cover and insurance). You can calculate the business element by keeping a mileage log of both business and personal mileage. Travel between your home and workplace, speeding or parking fines incurred are not allowable.
Alternatively, you can use the simplified method by claiming business mileage at 45p per mile for the first 10,000 business miles. Anything over this figure will be claimed at a rate of 25p per mile.
Pre-trading expenses
Expenses incurred up to seven years before a business begins to trade may be deductible as pre-trading expenses, as long as the expenses would have been allowable had they have occurred after the commencement of the business. If you’re new to the business world speak to your accountant about pre-trading expenses.
Trading and property allowance
The trading allowance is up to £1,000 of relief available to individuals with trading income. The property allowance is up to £1,000 of relief available to property owners. The allowances can be claimed instead of expenses or other allowances.
If you have both types of income you can claim both reliefs if you’re eligible.
Capital allowances
After calculating trading profits, you must adjust them for tax to get taxable profits. Your accountant can help with this. The main relief available to businesses are capital allowances.
Capital allowances let businesses deduct the cost of capital expenses such as equipment, machinery and vehicles from your profits. There are various types of capital allowance, depending on what the purchase is.
Record-keeping
Don’t forget, there are modern and easier ways to keep a reliable record of your business expenses. Digital software will save hours of paperwork and administration.
Need help with your tax return?
Contact TaxAssist Accountants for a free, no-obligation consultation.
Or contact usFrequently Asked Questions
Self-employed individuals, partners in business partnerships, landlords and individuals earnings over £150,000 may be required to file a tax return. Those in receipt of child benefit and earning over £60,000, or higher rate taxpayers earning interest income over £500 may need to complete a tax return too. For a comprehensive list check HMRC’s content on who must send a tax return.
Some tax reliefs have caps, but it depends on the type of relief. Speak to HMRC or our team at TaxAssist Accountants, who can give you the specific details you need.
In many cases, yes. You can often claim for the past few tax years, so it's worth checking if you've missed out.
This can vary, but for most reliefs, you'll want to claim by the self-assessment deadline of 31st January.
Check out the HMRC website or talk to a TaxAssist Accountant, we'll help you figure out what you're entitled to.
Certainly, if you have to work from home, you can request relief on some of your bills. In this article we looked at how sole traders can claim relief. If you have employment, the rules are slightly different and you can find more information here.
Most individuals in the UK have a personal allowance, this is the amount you can earn before paying tax.
You can avoid tax by planning to minimise your exposure to tax. To plan effectively, ensure you have trustworthy accounting records. Use online accounting software like QuickBooks or Xero for assistance.
There are lots of tax planning methods available to sole traders. These include claiming all allowable expenses as explained above, as well as making pension contributions and charitable donations. For friendly and professional help you can also speak to our team.
Sole traders get tax relief through claiming all allowable expenses. Sole traders can also claim for others such as capital allowances and the trading and property allowances.
Date published 6 Dec 2023 | Last updated 11 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.
Catherine Heinen, FCCA
Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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