As a sole trader in the UK, you have to file a tax return every year to HMRC by the 31st of January. Once you know how to fill it out it is a fairly straightforward, if time-consuming process. However, when filling out your expenses it can be hard to discern what you should claim, or not. Claiming the right expenses could save you hundreds, or thousands of pounds in tax. 

So, in this article, we will explain what expenses you can reasonably claim and provide you with a handy sole trader business expenses claim list.

We will cover with help from Kyle Eaton from Money.co.uk business insurance:

• How do self-employed expenses work?
• What expenses can I claim when working from home?
• What else can I claim back on tax?
• How can I track my expenses?
• How does HMRC determine if I’m self-employed?
• FAQs

Also, if you are still in doubt about this list or have any specific questions about your business, speak to a qualified accountant or bookkeeper.

Read More: Who Needs To Do Tax Returns?

How Do Self-Employed Expenses Work?

Self-employment means you are responsible for your own tax affairs. Each year, you submit a tax return to HMRC that details your profits and losses. HMRC then calculates the tax you owe.

However, working for yourself isn’t free. You will likely incur various costs, such as energy bills, travel expenses, clothing, or marketing, which all reduce your profits. For example, if you’re a carpenter who sells a handmade table for £500, but the raw materials and machinery cost a total of £200, your profit on the table is actually £300.

It wouldn’t be fair to pay tax on profits you haven’t actually made. So, you can deduct your business costs from your profits, which reduces the tax you owe.

To help with this, HMRC lets you enter a sum for expenses on your tax return. You don’t need to provide evidence of your expenses when you submit the return, but you should keep proof in case HMRC asks for it.

Read More: Maximising Your Deductions: A Guide to Self-Employed Expenses

What Expenses Can I Claim When Working From Home as a Sole Trader?

Many self-employed people work from home, but does that mean you can claim the full cost of your utility bills, rent or mortgage payments, Council Tax, and internet? Not entirely.

Before we get into the specifics, here’s a list of things you may be able to claim a proportion of the cost of:

• Heating
• Electricity
• Insurance
• Council Tax
• Mortgage interest or rent
• Internet and telephone

However, you can’t deduct the full cost of each bill in your self-employed tax return as the costs don’t relate solely to your work.

You need to estimate a reasonable proportion of each bill that applies to your work. One way to do this is by calculating the square footage of your home and the space within it which you use for work. Some bills are easier to split – for example, you can easily track work-related calls versus personal calls. Others might be more tricky and may require some help from an accountant or financial adviser.

You can see some helpful examples and ways to simplify expenses on the government website.

A List of Expenses You Can Claim as a Sole Trader

Other HMRC allowable expenses you can apply for include pretty much any costs you incur to do your work. This may include:

• Travel costs – such as train tickets or parking fees
• Clothing expenses – such as uniforms or PPE
• Staff costs – such as salaries or training courses
• Office costs – such as stationary, furniture or the bills if you have your own office
• Raw materials that you need to craft and sell on
• Charges – insurance, bank charges and loan interest
• Advertising and marketing – including website costs

In addition to these allowable expenses, you can also claim back the costs of larger items like vehicles, computer equipment or machinery. This is either cash basis expenses or capital allowances.

Small businesses and the self-employed can use cash basis expenses. It involves reporting your income and expenses for the year using traditional accounting.

Larger businesses with higher incomes use capital allowances – but not exclusively.

How Can I Track My Expenses?

Tracking expenses is easier these days with software and apps, but you can still keep folders of receipts and invoices if you prefer. Either way, it’s a good idea to organise your expenses into different categories – bills, travel, clothing etc. This helps you keep track of your expenses and also helps HMRC if they do ask you to produce financial statements to back up your tax return, which can most certainly happen.

However, if you decide to track your expenses, make sure you set time aside to do it regularly. It can be a big job if you leave it until the end of the year, and you can make mistakes.

If you want to take advantage of some apps or software, consider platforms like Xero or Quickbooks. Both are easy-to-use tools for tracking expenses and income. They sync with your bank account, allow you to categorise expenses easily and are available on iOS, Android and the web.

How Does HMRC Determine if I’m Self-Employed?

An individual is considered self-employed if they run the business and bear responsibility for its success or failure, according to HMRC.

If you’re still unsure, consider your work activities:

• Do you carry out your work independently?
• Do you invoice?

If the answer is yes, then you’re probably self-employed.

Notify HMRC as soon as you decide to switch to self-employment, even if you mix employment and self-employment. This allows HMRC to adjust your tax code accordingly and know to expect a tax return.

Keep in mind the deadlines. If you haven’t registered or submitted a self-assessment tax return before you must let HMRC know by a specific date. In 2024, the date was October 5. Once you register, HMRC will provide you with your Unique Taxpayer Reference (UTR). This reference number identifies you when you submit the tax return or if you need to contact HMRC to discuss your self-employed taxes.

Read More: Self Assessment Deadline Puts Christmas on Hold For UK SMBs

FAQs

Do I need receipts for my self-employed expenses?

It’s a good idea to keep receipts for all work-related expenses. You don’t need to upload them when you file your tax return but HMRC can ask to see them at a later date.

What are the most common self-assessment tax return errors?

Mistakes can happen, but some of the most common errors are usually avoidable. These include miscalculating income and expenses, failing to claim for expenses, submitting a tax return late and missing payment deadlines.

What happens if you do the self-assessment wrong?

Before you click the button to submit your tax return, you can still go through and edit it. If you notice an error after submission, contact HMRC as soon as possible to explain the situation. Failing to do so may result in penalties, such as fines. Depending on the mistake, it may also trigger a tax investigation and audit so it pays to get it right.

Can I claim business expenses if I’m using the tax-free trading allowance?

You can earn up to £1,000 each tax year from trading without paying any tax on it. If you’re only earning up to this allowance then you cannot claim any business expenses.

What is proof of expenses for the self-employed?

Types of proof you can use to show your expenses include receipts for goods and stock, bank statements, cheque book stubs, sales invoices, till rolls and bank slips.

Can I claim capital expenses when self-employed?

Yes, you can claim capital expenses when self-employed to claim back the cost of equipment, machinery and business vehicles.

Can I claim self-employed expenses for multiple businesses?

You can claim expenses for multiple businesses, but it’s important to stay organised. Don’t mix up the income and expenses for each business either as each business will require its own tax return.

What can’t I claim as a business expense?

You can’t claim anything as a business expense if it’s for personal use. That’s why you can only claim a proportion of things like rent/mortgage payments or utility bills. Examples of expenses you cannot claim include:

• Meals and entertainment for personal occasions
• Personal clothing and travel expenses
• Late fees on bills
• Parking fines
• Child care
• Groceries
• Loan/debt repayments – though if it’s business-related debt you can usually claim the interest portion of any loan repayment.