The one question I get asked the most often is “what expenses can I claim?” This blog lists some of the most common tax deductible expenses.
The basic rule is that you can claim any expenses that are wholly and exclusively for the purpose of carrying out your trade.
Examples of tax deductible expenses you may be able to claim include:
Stock: Cost of materials.
Payroll: Costs of employing staff or sub-contracting.
Premises costs: Includes rent, insurance, utilities such as gas and electric, repairs.
Work from home: If you work out of your home then as a sole trader you can charge a proportion of certain household expenses such as mortgage interest, utility bills, and insurance. A good way to calculate the proportion to charge is to do a rough estimate of square footage used, or base it on the number of rooms used, and the amount of time they are used for business. Note if you are using part of your house exclusively for business then this can give you problems with capital gains tax when you sell your house in the future – non exclusive use is much safer. Alternatively, you can claim £4 for each week where you use part of your house for work, which is an easier calculation!
Telephone and mobile phone costs: You can claim a proportion of your line rental and call charges. Ideally, periodically track your business calls and your personal calls so you can see what proportion of the use is for business. Keep a record of it (a call log) to support your tax return.
Internet and broadband costs: You can also claim a proportion of your broadband costs – again support this through keeping a log to show how many hours broadband is used for business purposes. You could keep a log for a couple of weeks every few months assuming that those weeks are representative.
Vehicle expenses: Fuel, insurance, tax, repairs - If the vehicle is used for personal use as well a deduction will need to be made to account for the personal use; OR
Mileage: Mileage is calculated at 45p a mile for cars for the first 10,000 miles, and 25p a mile above 10,000 miles. You can also claim mileage for motorbikes at 24p a mile, and for cycles at 20p a mile. Mileage can only be claimed for business mileage, and travel to your normal place of work cannot be charged (so if you work in the same office every day, that is viewed as normal commuting, and is not allowable for tax purposes).
Tools and equipment: Costs of tools, including any repair costs of tools.
Protective clothing: Could include, boots, work-wear, uniforms, protective goggles etc.
Business insurance: If you need any insurance for your business, e.g. public liability insurance, professional indemnity insurance, etc. then the cost is tax deductible.
Magazine subscriptions: If you have a subscription to a magazine, trade paper, etc. which is relevant for your business (e.g. Vogue if you are in fashion) then you can offset this against your business profits.
Website costs: Ongoing website hosting costs for your business site are tax deductible. Website development costs are viewed as capital expenditure so are treated differently, ask for advice from your accountant.
Advertising and marketing: You can charge your PR, advertising, and marketing costs against your business profits. Be careful though, you may think that business entertainment falls under this heading, but it doesn’t, and is not tax deductible.
Professional fees: If you pay a lawyer to draft your terms and conditions, or you pay an accountant for your end of year accounts, all of these fees are allowable for tax purposes.
Ongoing training costs: If you need to keep your skills and knowledge up to date then you can claim costs for training against your profits. If you are being taught something new which will enable you to add to your products or services then that is viewed as capital, and you should seek advice from your accountant.
Make sure you keep good records of your expenses, and all your receipts – either original hard copies or electronic scanned versions – to support your tax return.
This is not intended to be an exhausted list and if there are any other expenses you think you should be able to claim which I have not discussed above? Contact me and I will be happy to discuss your personal circumstances with you.
The information contained above is provided for information purposes only and is not intended to amount to advice on which reliance should be placed. We therefore disclaim all liability and responsibility arising from any reliance placed on such information. Professional advice should be obtained before taking or refraining from taking any action as a result of the above contents.