How Do I Claim Business Expenses as a Sole Trader?

As a sole trader, you’ll be used to handling everything yourself. From marketing to sales, and everything in-between, it’s down to you. It means that you’re also liable for everything financially, including those tax bills. If you’re looking for ways to reduce your tax bill, this is where expenses come in.

What business expenses can I claim for as a sole trader?

As a general rule of thumb, you are able to claim expenses for any product or service used to support your undertaking as a sole trader. It will naturally vary, depending on whether you work in your own home, or are based externally or travel for work, for example.

It also goes without saying that all expenses must be related to your business activity. Make sure you don’t include any private purchases you make through the business!

Allowable expenses include but aren’t limited to:

What records do I need to keep?

You’ll need to keep detailed records of all the transactions which happen in your business. These might include:

Having these records well organised makes it much easier when it’s time to file your Self Assessment tax return. It also helps make sure you’re reporting everything accurately. Paying too much tax is just as awkward as not paying enough, although HMRC are unsurprisingly a bit stricter about underpayments.

You should also keep hold of receipts, invoices and bank statements for anything you’re claiming as a business cost, like travel, equipment, and supplies. HMRC recommends keeping these records for a minimum of 5 years after the tax return deadline for that year, just in case they want to check up.

Some of my business records are missing. What should I do?

If some of your business records are missing, don’t panic – but it is something you’ll want to sort out. HMRC expects you to keep accurate records, so if some are incomplete, try to reconstruct them as best as you can. You can use bank statements or even notes about business transactions to fill in any gaps.

If you genuinely can’t find certain records, you might be able to make “reasonable estimates” for your Self Assessment, but it’s important to still be as honest and accurate as you can. Moving forward, try to keep on top of your records – it’ll make tax time so much easier and keep you out of trouble with HMRC!

How do I actually claim my business expenses?

Lots of online guides refer to claiming business expenses, which makes it sound a bit like you get the money back from somewhere. Unfortunately, it doesn’t quite work like that, but your expenses will help reduce your tax bill.

As a sole trader you’ll need to fill out a Self Assessment tax return where you detail what you’ve earned and any business expenses you’re claiming. HMRC then works out how much tax you owe based on your profits, along with National Insurance contributions if your earnings are above a certain amount.

Rather than paying tax on your total income, you’ll be taxed on the profits left over once your expenses are deducted. Which is why recording and reporting your expenses correctly is so very important.

If deducting your expenses means you make a loss rather than a profit, you won’t get a refund or anything nice like that, but in some cases, you might be able to roll that loss to a different tax year, and offset it against those profits instead. Speak to your accountant about that one – tax is complicated.

Can I claim for something I use for business and for personal reasons?

Yes, but you won’t be able to claim against the full amount of the expense, only against the proportion you use for business purposes.

For example, if you don’t have a separate business phone then you probably use your mobile phone for both business and personal reasons. If you spend £100 in a year on your phone bill and £30 of that bill is for personal calls and £70 for business, then you can claim for £70 of expenses.

It can get a bit more complicated if you work from home, as the expenses you can claim for include everything from gas and electricity, to council tax. You’ll need to work out how many hours you work from home for, and how much of your house is used for business purposes.

What are simplified expenses and why would I use them?

Simplified expenses do what they say on the tin. They make claiming expenses much easier by using a flat rate for expenses. The flat rate method can be used for expenses such as vehicles, or working from home. It means that you won’t need to work out the proportion you use for the business.

Instead, you can apply a flat rate to work them out but depending on what you’re claiming for you’ll still need to keep a record of your mileage, time spent working from home, or how many people have lived at your business premises over the tax year.

Sole traders are able to use simplified expenses, but they may not always be right for you, especially if there’s a high chance you’ll be left out-of-pocket. Use the government’s checker tool to work out if this is the most tax efficient option.

Is there any other type tax relief I can claim as a sole trader?

Absolutely! Sole traders are eligible for all sorts of allowances and relief. We’ve already mentioned claiming tax relief on your business expenses but there are other areas you might find help too, such as by paying into a pension fund.

If you’re just getting started or have a side hustle, the Trading Allowance is also worth knowing about. This allows you to earn up to £1000 tax-free on trading income, which can be especially useful if you’re earning small amounts here and there. way to simplify things.

Again, just make sure to maintain accurate records of everything so when it’s time to do your taxes you’re in the best position to claim all the relief you can, without accidentally over or under pay tax.

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