What Expenses Can I Claim as A Sole Trader?
Do you know how to calculate what expenses you can claim as a sole trader? We will tackle the question – what expenses can I claim as a sole trader within this post!
As a Sole Trader, you can only be taxed on the profits of your company.
Income – (expenses + personal allowances) = PROFITS
Therefore, if in the year 2017 you turnover £100,000 but have expenses of £20,000, you will only pay tax on £80,000. In this scenario, whilst you are only paying tax on £80,000 and not the full £100,000, bear in mind you have spent £20,000 cash!
However, if your business generates £25,000-£30,000 turnover we advise that you should move from a Sole Trader to a limited company. This is typically the value which makes the tax savings worth it, alongside the increased accounting costs, to justify the move to a limited company. To learn more read Directors Salary and Dividend 2017/18 and Sole Trader vs Limited Company.
Genuine Expenses Only
It may seem self-explanatory but you can only claim business expenses, if they are in fact, business expenses or company expenses. Therefore, an expense claim is only valid if it was incurred though the business or through business activities and has not been classified as disallowable by HMRC. This also means that you cannot claim expenses which have a dual purpose i.e. for both personal and business use.
Business related + classed as allowable by HMRC = Genuine Expense
If in doubt, it is always best to check with an accountant as you may have to pay a misconduct fine if HMRC finds you have claimed a personal expense as a business expense.
As a Sole Trader you will be expected to register and file a Self Assessment tax return which will determine the level of tax you will pay.
You should always keep a record of your receipts as proof, in case you need to prove the legitimacy of your claim further down the line. HMRC states that records must be kept for a minimum of 6 years from the end of the last company financial year they relate to. Read How to Manage Receipts as a Small Business Owner for further information on receipt management best practice.
What Can I Claim?
To tackle this, rather large, question we’ve created an A-Z guide of common business costs and expenses for Sole Traders and Self-employed Individuals. We’ve listed the most common business costs and expenses you’ll most likely need, as well as explain HMRC’s guidance for claiming tax relief on these costs. To get your free A-Z ‘Can I Claim It?’ Guide, click the download button below.
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