It’s something that comes up often for our sole trader clients, what are business expenses, or what can be? How do I get it right? It’s easy to fall foul of the rules, sometimes without meaning to.
Getting your business expenses right though, can help you increase your business’ cashflow through claiming appropriate tax relief.
All sole traders are entitled to claim for tax allowances whether they have been trading for many years, or just one. Claiming an allowance means that a business can claim tax relief on specific items which are commonly called ‘allowable’.
Some of the most common ‘allowable’ business expenses to be claimed tax relief on include:
- Travel and motor running expenses are a type of allowance permitted to claim for fuel, parking, repairs, breakdown cover, insurance and servicing. It is only possible to claim for business matters, and any personal travel between home and work, non-business driving costs, speeding or parking fines will not be counted.
- Household expenses can be claimed as a sole trader if you work from home and bills are minor. Any rooms in the house used for business purposes should be kept for business purposes during work hours, although allowing family to use the room after work will avoid you being charged Capital Gains Tax when selling your home. Tax deductible expenses can be cleaning costs, heating, repairs, electricity, water, council tax, mortgage interest and rent.
- Training courses also qualify as an allowable business expense although it must be relevant to your profession or work, and not something related to entering other marketplaces.
- Tools and equipment are also tax deductible if the sole trader depends on machinery to do their job, and also if maintenance or replacements are needed.
- Buying or leasing vans and cars are also claimable business expenses, and there are three leases available (Hire Purchase, Operating Lease, and Finance Lease).
- Uniforms’ tax claims are only possible to be claimed if they are only able to be used for work, and not ‘everyday wardrobe’. Tradesmen costs for protective clothing, and even entertainers for stage costumes can claim tax allowance.
What is deductible will depend on your business and how you operate, so take advice. If you aren’t sure, it is always worth checking with your accountant if costs are tax deductible and how to handle them, It’s better to check for mistakes now.