Allowable expenses for Sole Traders
When operating as a sole trader it can be a minefield regarding what expenses you can and can’t claim and there can be many grey areas. Everyone’s situation is different so we deal with expenses on a one on one basis and do what we can do reduce tax liabilities for all our clients. To help make this confusing subject a little clearer we have put together a list of allowable and disallowable expenses. It is worth bearing in mind this is a generalised list and any specifics should be addressed with your accountant.
| Category | Allowable expenses | Non-allowable expenses |
| Purchases of materials | · Materials that are used wholly and exclusively for the trade | · Normal selling price of goods or materials taken for private use.
· Cost of goods taken for private use. |
| Construction industry – payments to subcontractors. | · Construction industry subcontractor’s payments (before taking off any tax). | · Payments for non-business work. |
| Wages, salaries and other staff costs. | · Wages, salaries, bonuses, pensions, benefits for staff or employees and employers’ National Insurance contributions | · Own wages, drawings, pension payments, National Insurance contributions if included in expenses.
· Payments for non-business work. |
| Car, van and travel expenses. | · If you choose to put your vehicle in the business then you can claim all motoring costs such as car and van insurance, repairs, servicing, fuel, hire charges, vehicle licence fees, AA or RAC membership.
· If you do not put the vehicle in the business you can claim business mileage. It is essential to keep a mileage record. You can then claim 45p per mile for the first 10,000 miles with 25p thereafter. (Please discuss the best method for you with your accountant). · Train, bus, air and taxi fares, hotel room costs. · Meals on overnight business trips. |
· Non-business motoring costs. This is often a percentage.
· Fines. · Travel costs between home and business. · Other meals. |
| Rent, rates, power and insurance costs. | · Rent for business premises, business and water rates, light, heat, power, property insurance, security.
· If you use your home for business, the business proportion of the expenses or flat rate. |
· Costs of buying the premises, if you live on the business premises.
· Expenses of any private part of the premises or the flat rate amount. |
| Repairs and maintenance of property and equipment. | · Repairs and maintenance of business premises and equipment.
|
· Repairs of non-business parts of premises or equipment.
· Costs of buying, improving or altering premises. |
| Phone, fax, stationery and other office costs. | · Phone, mobile, internet, email and fax running costs.
· Postage, stationery, printing, small office equipment and computer software costs. |
· Non-business or private use proportion of expenses. (Ignore private use of phone and broadband service if this is insignificant.)
· New phone, fax, computer hardware or other equipment costs if you use traditional accounting. |
| Advertising and business entertainment costs. | · Advertising in newspapers, directories etc
· Website costs |
· Entertaining clients, suppliers and customers. |
| Interest on bank and other business loans. | · Interest on bank and other business loans.
|
· Repayment of the loans, overdrafts, or finance arrangements. These are classed as liabilities and will go through the balance sheet |
| Bank, credit card and other financial charges. | · Bank, overdraft and credit card charges, hire purchase interest and leasing payments. | · Repayment of the loan, overdraft or finance arrangements. |
| Irrecoverable debts written off. | · Amounts included in turnover but unpaid and written off (due to being unrecoverable). | · Debts not included in turnover.
· Debts relating to fixed assets. · General bad debts. |
| Accountancy, legal and other professional fees. | · Accountants, solicitors, surveyors and other professional fees.
· Professional indemnity insurance premiums. |
· Legal costs of buying property.
· Legal costs of buying equipment if you use traditional accounting. · Costs of settling tax disputes. · Fines for breaking the law. |
| Depreciation and loss/profit on sale of assets. | · Capital allowances applied instead of depreciation | · Depreciation of fixed assets
· Losses on sale of assets |
| Other business expenses | · Clothing with your logo/ brand
· Safety equipment · Training relating to your business activities · Other business expenses not included above that relate wholly and exclusively to the business |
· Payments to clubs, charities, political parties and so on.
· Non-business part of any expenses. · Cost of ordinary clothing. |