What Expenses Can You Claim as a Sole Trader in the UK?

Why Knowing Your Allowable Expenses Matters

You are taxed on your profit as a sole proprietor, not your entire income. This implies that before determining your tax liability, you can deduct allowable business expenses from your revenue.

If permitted costs are not claimed, you may have to pay more tax than you need to. However, HMRC may impose penalties for claiming non-qualifying costs. Being aware of the differences enables you to enhance your earnings and maintain compliance.

Key Rules for Claiming Business Expenses

Here are some guidelines to abide by before we get into particular categories:

"Wholly and exclusively" business-related expenses are required.

Accurate records and receipts must be maintained.

Only when a cost is used for both personal and commercial objectives can you claim the business component of it.

Unless permitted by capital allowances or simplified rules, do not claim capital expenses as regular expenses.

1. Office Costs

You can still claim numerous office-related expenses even if you don't have a distinct office space. These consist of:
Pens, notebooks, and printer ink are examples of stationery and supplies.

• Postage and courier charges

• Broadband and phone bills for business use exclusively

• Computer software, whether purchased as a subscription or utilised within two years

• Equipment and furniture may need to be claimed through capital allowances.

Advice: You can claim a percentage of your internet, energy, and rent if you work from home (more on this below).

2. Costs of Travel

• A variety of travel-related expenses are deductible for sole proprietors who travel for work. Among these are the costs of public transportation, such as buses, trains, aeroplanes, and taxis.

• Vehicle costs include petrol, insurance, maintenance, MOT and breakdown assistance.

• Tolls and parking costs

• Overnight hotel accommodations

• Meals while travelling for business overnight

Note: You can only claim for travel related to business, not for commuting from home to your usual place of employment.

Simplified Mileage Method:

You can use HMRC's simplified mileage rates in place of keeping note of each car's expenses:

For the first 10,000 miles, the rate is 45p per mile.

After that, 25p per mile

3. Cost of Clothes

Clothes expenses can only be claimed if they are:

• Workwear that is compulsory or labelled

• protective equipment, including gloves, helmets, and steel-toe boots.

• Costumes for entertainers or actors

Even if you wear your regular clothes to work, they are not permitted.

4. Costs of Employees and Subcontractors

You can make the following claims if you hire employees or use independent contractors:

• Salary and wages

• Commissions and bonuses

• Contributions to Employer National Insurance

• contributions to a pension

• Costs of employee wellness and training

If you pay employees directly, you need to have an HMRC employer registration.

5. Raw Materials and Stock

The following is applicable to companies that manufacture or sell goods:

• Stock bought to be sold again

• Products' raw materials

• Costs of packaging and delivery

• Costs of direct production

To monitor your cost of goods sold, be sure to maintain note of all inventory purchases and sales.

6. Promotion and Marketing

Disseminating information about your company? You can deduct costs for things like website design and hosting.

• PPC and SEO marketing

• Flyers and business cards.

• advertisements on social media (Facebook, Instagram, LinkedIn, etc.)

• Events for marketing or trade exhibits

Just make sure it's solely for business purposes; HMRC doesn't accept entertainment or hospitality costs, such as taking clients out to dinner or an event.

7. Costs of Business Premises

The following are acceptable if you work from a company location rather than your residence:

• Payments for rent or leases

• Utility bills for water, gas and electricity

• Insurance for real estate

• Business prices

• Upkeep and sanitation

You may alternatively deduct a percentage of your household expenses if you use your home for business.

8. Costs of Working from Home

A lot of independent contractors work from home, at least occasionally. You are able to assert:

• A percentage of the interest paid on a mortgage or rent

• Council tax

• Gas and electricity

• Phone and internet bills

Option 1: Real Prices

Determine the percentage of your house that is utilised for business purposes, then apply that figure to your expenses.

Option 2: Streamlined Costs

Make use of HMRC's flat-rate procedure:

£10 per month for 25–50 hours

51–100 hours per month: £18

101+ hours per month: £26

9. Legal and Professional Fees

Fees paid to experts that assist in managing your company, like accountants or bookkeepers, might be claimed.

• Legal costs and solicitors (business related)

• Business insurance, such as professional indemnity and public liability

• Memberships in professional organisations or trade associations

10. Education and Training

If professional development is relevant to your current trade or business, you can claim it. You are able to assert:

• Classes to enhance current abilities

• Certifications or compliance training tailored to a particular industry

Note: You cannot make a claim for beginning a new business or learning a new trade.

11. Bank and Financial Fees

• Among these are bank costs associated with company accounts.
  

• Interest on credit cards or business loans

• Interest in leasing and hire purchasing
  

• Bad debts are sums of money that you owe but won't pay back.

12. Allowances for Capital

Vans and computers are two examples of major purchases that could need to be reported as capital allowances rather than expenses. You could make use of:

• Allowance for Annual Investment (AIA)

• Recording Allowance

• Allowance for the First Year

These enable you to subtract a portion or the entirety of the value from your earnings.

Costs You Are Not Able to Recover

Not everything is eligible. Typical expenses that are not permitted include:

• Individual costs

• Business lunches plus entertainment for clients

• Parking penalties or speeding tickets

• Clothes (unless protective or uniform)

• Travel from home to the usual location of employment

  
  

Maintaining Accurate Records

HMRC mandates that sole proprietors maintain records for a minimum of five years following the relevant tax year's 31 January reporting deadline. You ought to preserve:

• Invoices and receipts

• Statements from banks

• Logs of mileage

• Software logs (such as Xero and QuickBooks)

  
  

Maintaining organisation and compliance is made simpler by using accounting software.

Doing It Yourself vs. Hiring an Accountant

Even while many sole proprietors manage their own tax returns, you can benefit from employing a certified accountant:

• List all of the permitted expenses.

• Avoid fines or mistakes

• Make tax-efficient plans.

If you choose to complete it yourself, think about utilising authorised accounting software or HMRC's Self Assessment portal.

Concluding remarks

Effectively managing your company's finances requires knowing which expenses you can deduct as a sole proprietor in the UK. Each allowable expense you report lowers your taxable income and promotes sustainable business growth.

Keep yourself organised, take the time to examine your cost categories on a regular basis, and, if necessary, seek professional help. There are legal ways to reduce taxes, whether you're driving across the nation, working from home, or developing your company online.