Top expenses for your self-assessment tax return

At 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: 

1. taking a portion of your household bills 
2. 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. 

Last updated: 11th October 2024