Sophie Clarke
The golden rule: wholly and exclusively
When you're self-employed, the starting point for every expense is a simple but strict test: was the cost incurred wholly and exclusively for the purposes of your trade? HMRC uses this phrase, and it means a cost must be for your business and nothing else. If something has a personal benefit, you can only claim the business proportion. A mobile phone used for both work calls and family chats is a classic example. You might claim 70% of the bill if that reflects your business use, but you cannot claim the full amount. Plenty of everyday costs pass this test easily. You just need to be honest and keep evidence.
Everyday running costs you can usually claim
Most sole traders and partners can claim a wide range of routine costs that keep the business moving. These include:
- Office supplies such as stationery, printer ink, paper, postage and courier fees.
- Computer equipment, software subscriptions and cloud storage, though items lasting several years may need to be claimed as capital allowances instead.
- Phone and internet bills, but only the business percentage if there is personal use.
- Bank charges, credit card fees and interest on business loans.
- Business insurance, including professional indemnity and public liability cover.
- Advertising, website hosting, domain names and marketing costs.
- Subscriptions to trade magazines or professional bodies, as long as they are relevant to your work.
If you sell goods, the cost of stock and raw materials is also allowable, as is packaging and delivery. Keep your receipts, because HMRC can ask to see them.
Travel, vehicles and the commute trap
Travel is one of the most misunderstood areas. You can claim the cost of travelling to see clients, attend meetings, visit suppliers or go to a temporary workplace. You cannot claim ordinary commuting between your home and your main place of work. That is a personal cost, even if you work from home and travel to a permanent office once a week. If your home is your main workplace and you travel to a client site, that journey is usually allowable.
For vehicles, many sole traders use HMRC's simplified mileage rates. For cars and vans, you can claim 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile after that. Motorcycles get 24p per mile, and bicycles 20p per mile. You can also claim parking and congestion charges on business journeys, plus train and bus fares. Keep a mileage log with dates, destinations and business purposes. It does not need to be fancy, but it does need to be consistent.
Working from home without overcomplicating it
If you run your business from home, you can claim a proportion of your household bills. The simplest method is HMRC's flat rate, based on the number of hours you work from home each month. For 25 to 50 hours, you can claim £10 per month; 51 to 100 hours, £18; and 101 hours or more, £26. This covers gas, electricity, water, council tax and broadband. You do not need to work out percentages or keep every utility bill.
Alternatively, you can calculate the business proportion of your actual costs. That means adding up your heating, lighting, internet and phone bills, then working out a reasonable percentage based on the space you use and the time you spend there. This can give a higher figure, but it takes more admin. Whichever method you choose, be consistent and avoid claiming anything that looks like rent or mortgage interest unless you have taken proper advice. Those can have capital gains tax implications if you later sell your home.
Professional fees, training and admin
Paying for help is a normal part of running a business, and those costs are usually allowable. You can claim:
- Accountancy and bookkeeping fees, including the cost of preparing your self assessment return.
- Legal fees for business contracts, debt recovery or employment advice.
- Professional indemnity insurance and subscriptions to regulatory bodies.
- Training that updates your existing skills, such as a refresher course in your trade.
- Books, journals and technical publications related to your work.
- Software for invoicing, accounting or project management.
Be careful with training that teaches you a completely new skill or trade. HMRC usually treats that as capital or personal, so it is not allowable. If you are unsure, ask your accountant before you claim.
What you cannot claim, and keeping records that stand up
Some costs are firmly off limits. You cannot claim personal living expenses, ordinary clothing (unless it is a uniform or protective gear), client entertaining, fines, speeding penalties or tax penalties. Drawings, which is money you take out of the business for yourself, are not an expense either. Nor can you claim the tax you pay on your profits.
Record keeping is where good intentions meet reality. Keep every receipt, invoice and bank statement that supports your claims. For mileage, keep a log. If you use accounting software, photograph receipts as you go, so nothing gets lost in a drawer. HMRC generally expects you to keep records for at least six years from the 31 January after the tax year ends. Good records make your tax return quicker to complete and help you sleep better if HMRC ever asks a question.
Finally, remember that you only claim what is genuinely for your business. If you are ever unsure, a quick call to an accountant can save you far more than it costs. With a bit of care, your expenses can reduce your tax bill legally and sensibly, leaving you to focus on the work you actually enjoy.
