Expenses: what you can and cannot claim if you are self-employed
If you are a sole trader you may find the following pages helpful:
- What expenses can you claim?
- Claiming expenses as a sole trader
- Top ten expenses to claim as a sole trader
- Expenses you may be missing out on as a sole trader
There are many advantages to being self-employed from the freedom of being your own boss, to flexible working hours, to the ability to choose which projects you work on. One other benefit of being self-employed is that you could be entitled to expense business costs that are solely and exclusively for the running of your business.
Understanding expenses can seem confusing, so we have created a short guide to some common expenses, with examples of what you can and cannot claim.
If your business requires you to stay away from your permanent address overnight, the accommodation costs could be claimed as an expense. In this situation you may also be entitled to claim for the cost of meals and a small personal allowance for newspapers, hot drinks and phone calls home.
Advertising, marketing and PR
If you want to expand your customer base and gain more business then you may consider employing the services of an advertising, marketing or PR professional. Whether you are using a freelancer or an agency and whether is it a one off cost or an ongoing project the cost could be claimed as an expense.
Bank charges that are incurred on business accounts could be claimed as an expense. These charges may be anything from loan interest to overdraft charges and credit card fees.
Childcare costs are not deemed to be exclusively for the running of your business and so are not able to be claimed as an expense.
If you are a limited company director and pay yourself a salary then you could claim up to £243 a month in childcare vouchers. These are paid out of your gross salary (salary before tax) and so may help to reduce your tax bill.
If you are a sole trader you are not able to claim childcare vouchers because you do not pay your tax monthly.
In autumn 2015 there is a new child care scheme coming into place, which will be open to all workers (including sole traders) who earn an average of £50 per week or more, without exceeding £150,000 per year. For every 80p that you pay into the scheme the government will pay in 20p up to a total amount of £10,000 per year.
Clothing that could potentially be used for both business and everyday wear such as a suit or a business dress is not seen to be solely for business use and cannot be claimed as an expense.
There are a few exceptions where clothing might be classed as a business expense. For example, if you are working as a self-employed Children's Entertainer and you need to purchase a costume that would be solely used for business related performances, the costume cost could be claimed as an expense.
The cost of uniform, which is used solely for work and is branded with the company logo, could be claimed as an expense. For example, if you are a self-employed Beauty Therapist then your branded tunic may be claimed as an expense. However, the cost of any shoes, tights etc. which could be used as part of your everyday wardrobe cannot be claimed as an expense.
Protective clothing such as steel-toe capped boots, high visibility jackets and hard hats might be eligible to be claimed as an expense.
If you work from home then you could claim a proportion of your council tax as a business expense. The amount that you are able to claim is based on the amount of time that you spend working from home.
Mortgage and rent
If your business requires you to work from home then you might be able to claim a proportion of your rent and mortgage interest as a business expense.
Please note that while you may be able to claim the cost of your mortgage interest, you will not be able to expense mortgage repayments.
If you are working on a self-employed basis then you will probably require the needs of an accountant or a solicitor. The charge for professional services such as these can in some cases be claimed as an expense.
If you buy any stationery, which will be solely used from your business such as business cards, pens, paper etc. then the cost could be claimed as an expense.
Whether you are a sole trader or a director of your own limited company you could claim your travel costs on trips where the destination is not your usual place of work, such as a client’s premises. This is the case for all forms of transport from cars to bikes to trains.
As a sole trader you can choose whether you claim a mileage cost or claim the proportion of your total travel costs that has been used for business purposes.
For example, if you use your car for both personal and business use, to work out the proportional cost that you could claim you need to first calculate the total yearly cost of running your car including all fuel, insurance and repair costs. The next step is to work out the percentage of miles travelled for business and apply this percentage to the total cost. The figure that you are left with is the amount that you could claim as an expense.
If you are a director of your own limited company then you would usually claim your travel expenses in mileage, which takes into account all of the costs of running your vehicle including wear and tear.
If you drive a van or car then you could claim 45p per mile for the first 10,000 miles travelled in the tax year and 25p per mile for any miles travelled thereafter.
If you drive a motorbike then you may claim 24p per mile and if you cycle to work then you could claim 20p per mile.
Toll fares, car parking costs and congestion charges may all be classed as business expenses. However, any speeding tickets or parking fines are not classed as business expenses, even if the fines were incurred on a business trip.
If you work from home a proportion of the time or even the whole time, the extra cost that this puts on your household costs may be able to be claimed as an expense. These costs could include electricity, gas, water, broadband and home phone line rental.
It can be confusing to know what expenses you can and can’t claim. Therefore it is always a good idea to discuss your expenses with your accountant to ensure that your claim is valid. If you have any questions or would like some more information about expenses then the friendly accountants at Easy Accountancy would be happy to help you. Please feel free to contact us on 0500 234111 / 01442 275767 or email firstname.lastname@example.org.
You may also find the following pages helpful: