Self Employed Allowable Expenses

Self Employed (Sole Trader) : What You Can (and Can’t) Deduct from Tax

One of the most common questions from our Self Employed clietns is whar expenses can be claimed and as a self-employed/sole trader whether you’re a producer, artist, designer, writer, illustrator, therapist, financial advisor, Personal Trainer or an Artist or indeed work in any other industry — you want to keep as much of your income as possible. One of the most effective ways to do that is by claiming all your allowable business expenses. If you overlook them, you could end up paying more tax than necessary.

Minimising Tax by Claiming the Right Business Expenses

Nobody wants to pay more tax than necessary. Yet, if you’re self-employed and don’t take full advantage of allowable expenses, that’s exactly what could happen. To prevent this, it’s vital to keep accurate records of all costs linked to running your business—and to understand which ones are tax-deductible and which aren’t.

Understanding the Basic Rule

At the heart of business expense deductions is a simple principle: you can claim a tax deduction for any cost incurred wholly and exclusively for your trade. If an expense serves only a business purpose, it generally qualifies for relief.

This differs from the rules for employees and for Limited Companies which must follow different principles not discussed here

Business vs. Personal Costs

Only expenses linked directly to the business can be claimed. Personal or private costs are not allowable. To keep things clear, it’s a smart move to use a separate bank account and credit card exclusively for your business. This avoids mixing business and private spending.

When you’re reviewing your accounts, be careful not to include personal items by mistake.

Shared (Mixed-Use) Expenses

As some expenses have both personal and business elements you can still claim the business portion, provided it’s identifiable.

The most common is that a mobile phone is used for both work and personal calls, for example, if you spend £1,000 a year on your phone and 75% of the usage is business-related, you can claim £750.

The same general principle applies to vehicles, if you use your personal car for work purposes, but for simplicity it might be easier to track mileage and claim relief using HMRC’s Authorised Mileage rates of 45p per mile for the first 10,000 business miles, and 25p per mile thereafter on tax year basis.

Dual-Purpose Spending

Some items have an inseparable personal element, which makes them ineligible for tax relief. A common example is everyday clothing worn to work. Even if the clothes are only worn during working hours, they still serve a personal function (keeping you warm and decent), which disqualifies them.

There are a few exceptions such as branded workwear with your business’s logo and safety equipment.

Incidental Private Use

If a business expense happens to carry incidental use to provide minor personal enjoyment that doesn’t automatically rule it out, but what qualifies as incidental isn't clearly defined in HMRC guidance so extra care should be taken here.

Working From Home

If you work from home, then a small proportion of household bills that increase by virtue of you working can be split between personal and business use. There’s also a simplified method to calculate home office expenses, involving a fixed rate based time spent working from home.

Common Deductible Business Expenses

In summary here are some typical costs that may be deductible, provided they are solely for business purposes:

• Office supplies like stationery, postage, and telephone bills

• Business travel: fuel, train fares, taxis, and parking fees

• Uniforms with your logo (not regular clothes)

• Stock or goods bought for resale

• Accountancy fees

• Business insurance

• Marketing and advertising expenses

• Computer Equipment

  
  

Final Tip: Stay Organised

The easiest way to avoid missing out on valid deductions is to track everything. Keep receipts, label your transactions, and update your expense records regularly and there are great software solutions like XERO to help you do so. And ask yourself the question: Was this cost purely for my sole employed work? If the answer’s yes, it probably qualifies.

WE CAN HELP

As experienced and specialist tax advisors, we can help ensure you're claiming all the expenses you're entitled to, with the goal of making your freelance business as tax-efficient as possible. You can book in free and no obligation call with a qualified tax advisor here https://calendly.com/flownewcontact/free20mintaxconsultation