Updated: Jan 27, 2019
Preparing self assessment tax returns is something I do regularly for my clients, and by far the most common questions I get asked are about what expenses can be claimed.
The short answer is that if your business activity results in expenses which are wholly and exclusively costs of business, and not personal expenses, you can probably deduct them when working out your business profits for tax purposes, and today I thought I'd talk about some of the most common expenses my clients ask about claiming.
Before I get started though, I should be clear that what I'm about to write applies to sole traders preparing a self assessment return and is based on HMRC's guidance in their online leaflet HS222, if you have any questions at all, you should ask HMRC or your accountant or bookkeeper, and please keep in mind that the rules are different for limited companies.
As a sole trader, you can almost never claim for food and you certainly can't claim the cost of food and drink when you're working from home or your usual location. HMRC tell us that we must eat to live and as such you can't claim for many meals at all. The exception to this is that you can claim the cost of meals (within reason) when on overnight business trips which are wholly for business purposes, but not for other meals and you can't claim for entertaining clients, suppliers or customers.
We all need clothing and the cost of ordinary clothing (even if it's only worn for work) cannot be claimed as an expense. So, even if you're a personal trainer and need lots of sports wear, it cannot be claimed as a business expense because this clothing could be worn out of work. I was recently asked whether a high profile speaker could claim the cost of a dress she bought to wear on stage giving a presentation, and as a dress is classed as ordinary clothing, the answer is no. If you need to buy a hardhat for your work on a building site on the other hand, this should be fine.
Travel on public transport which is wholly and exclusively for the purpose of business can be claimed, so if you travel to a meeting, then you can claim the cost of the bus, train, plane or taxi as as an expense. You should also be able to claim for the cost of the hotel if you stay away.
There are different methods of claiming the cost of using your personal vehicle for business trips, and these depend on whether you're using the accruals basis or cash basis and whether you choose to use simplified expenses or the capital allowances method for claiming your costs. Under the simplified expenses model (only possible if you use the cash basis) you can claim 45p per mile for the first 10,000 miles travelled for business and 25p per mile after that, if you use the traditional (accruals) method of accounting, you'll claim a combination of capital allowances for your vehicle and running costs incurred during the year and I'd suggest speaking to your bookkeeper or accountant about what this really means if you're struggling to decipher the guidance from HMRC.
Working from home
If you work from home you can claim a proportion of your bills as a business expense. It can become a bit of a convoluted calculation but it's definitely worth doing as you can claim for a proportion of most of your utilities when you work from home. If you use the cash basis you have the option of using HMRC's simplified expenses to claim your working from home costs instead.
Phone and internet
On top of the working from home expenses, you can also claim the business proportion of your phone and internet bills.
Don't forget that if you use a computer for your work, you can also claim the cost of that (or the business proportion of it's cost) as an expense. If you use the cash basis, you'll be able to write off the full business cost in the year in which you bought your computer and if you use the accruals basis you'll be able to claim part of the cost each year through capital allowances.
Giving to charity
If you're a sole trader, you and the business are the same legal person. This means you can give money to charity but the business cannot. If you give money to charity, you won't be able to deduct it as a business expense, instead you'll state the amount given to charity in the charity donations part of your tax return instead.
HMRC have lots of more detailed information in their guidance on how to calculate your taxable profits and one of the best guides I've seen is FreeAgent's A-Z of small business expenses & costs, this is a straightforward guide I really recommend downloading and keeping to hand.
Of course, if you have any questions at all about the expenses you can claim in your tax return, you should speak to HMRC or your bookkeeper or accountant, and if you'd like to talk to me about how I can help you with your tax return, please get in touch.