If you’re self-employed (either a sole trader or a partner in a business), there are certain expenses you can charge your business and therefore get a tax deduction for.
And the good news for the self-employed is that you can use the simplified expenses rules for some of these expenses. So let’s look at the simplified expenses first.
Simplified expenses
The expenses you can claim using the simplified expenses rules are as follows:
Motor expenses
Rather than calculating the actual costs of running your car each year and then claiming the business proportion under the simplified expenses rules for self-employed business owners (NOT limited companies) you can simply claim a flat rate per business mile if you use your own car, van or motorbike for work.
The rates are currently (June 2016) as follows:
| Annual Mileage | Rate per mile |
|---|---|
| Cars & vans – up to 10,000 miles | 45p |
| Cars & vans – over 10,000 miles | 25p |
| Motorbikes | 24p |
So if you’ve driven 11,000 business miles in a year you can claim £4,750 (10,000*45p + 1,000*25p)
Working from home
Rather than working out a proportion of your actual home costs you can claim a flat rate based if you work more than 25 hours a month from home.
| Hours of business use each month | Flat rate per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 or more | £26 |
Let’s assume you worked 40 hours a month for 10 months and then 60 hours a month for 2 months, you could claim £10*10 + £18*2 = £136.
However if you are a childminder you are entitled to claim much more reasonable allowances as many childminders are members of the Professional Association for Childcare and Early Years (PACEY), formerly known as the National Childminding Association (NCMA).
HMRC entered into an agreement with the NCMA on the expenses that will be allowed as deductions from childminding income.
Household expenditure
The agreement is based on the hours that childminders work and not on the number of children they care for. A childminder looking after a child on a full time basis for 40 or more hours each week is entitled to claim the full time proportion of expenses.
How this works is illustrated in the following table:
| Hours worked | % of Heating and lighting costs | % of Water rates, Council Tax and Rent |
| 10 | 8% | 2% |
| 15 | 12% | 4% |
| 20 | 17% | 5% |
| 25 | 21% | 6% |
| 30 | 25% | 7% |
| 35 | 29% | 9% |
| 40 (full time) | 33% | 10% |
Living at your business premises
If you live at your business premises (eg a bed & breakfast) you can claim a flat rate per month based on the number of people living at the premises as follows:
| Number of people | Flat rate per month |
|---|---|
| 1 | £350 |
| 2 | £500 |
| 3 or more | £650 |
To find out whether you’d be better of using the simplified expenses method, you can use HMRC’s handy calculator here.
Other expenses
So what other expenses can you claim as a sole trader?
Mobile phone
You can claim the business proportion of your mobile phone costs. You need to be able to justify whatever percentage you use should HMRC ask.
A good way to calculate this percentage is by reviewing two or three months bills – as long as you’re business and overall usage doesn’t change significantly each month, this should give you a good guide.
Subsistence
If you travel for business, you’ll be allowed a ‘reasonable’ amount of subsistence costs i.e. food and drink.
Travel & business mileage
One of the most contentious issues in tax is what constitutes business mileage. This isn’t as simple as it seems and it’s an area that HMRC regularly challenge. And the main area under contention tends to revolve around whether your home or elsewhere is deemed to be your base of operations. Any travel from your base of operations which relates to your business is allowable. However travel between home and your base of operations isn’t allowable. This means that there have been a number of HMRC cases where a taxpayer has tried to claim that their home is their base of operations – as this means then any journeys from home for business purposes will be allowable. This generally allows the taxpayer to claim more business mileage than if they first have to leave home and drive to their ‘base of operations’.
Once you’ve worked what constitutes your business travel you can then claim the following:
- Motor expenses – either a mileage allowance or proportion of your costs for business travel (as shown above)
- parking
- train fares
- bus fares
- congestion charges
And what about parking tickets? Well, that’s another very contentious area which is under debate. However a recent case involving G4S has determined that where a parking ticket has been issued due to a breach of the law (as with council car parks) then the ticket is not an allowable expense. What has been left uncertain is the situation where a parking ticket is issued by a private organisations – for example if you’ve parked in a private car park. You potentially won’t have broken any laws and so there may be an argument for being able to claim any such tickets.
Accountancy fees
Any accountancy fees you incur for preparing your sole trader or partnership accounts are an allowable business expense.
However any fees incurred in preparing your personal tax return in general are not allowable.
In practice this generally means that your total accountancy fees will be allowable as an expense as the argument would be that the incidental cost of preparing your personal tax return would be minimal.
Entertaining
Entertaining clients, customers or any other third parties (even where it is totally business related) is not allowable.
You’ll still want to show this as a deduction in your accounts – but it will be added back when calculating your taxable profits.
If, however, you hire a room for a event or presentation, the cost of the room is allowed but any ‘entertainment’ costs must be disallowed.
If you are an employer and you entertain your staff, then this will be treated as staff welfare and will be allowable.
Training
Where you undertake training to keep your current skills updated, or because it is required to maintain membership of a professional body, then any such training will be allowable.
However if you undertake training to acquire a new skill then this will not be allowable. HMRC’s view (supported by case law) is that acquiring a new skill enables you carry out your trade, for example a doctor can’t claim the cost of a degree course required to become a doctor although they can claim for ‘continuing professional development’
Clothing and uniform
You are allowed to claim uniform costs (and might be able to claim for clothing if it has your business logo on it) as well as any protective clothing required for your business.
However you can’t claim for everyday clothing – even if you only buy a suit to wear to business meetings!
If you’d like any other help on what you can and can’t claim for business, then do get in touch.