As a sole trader, you’re entitled to certain allowable expenses throughout the tax year. Although, it’s not always obvious what does and doesn’t count as an allowable expense, meaning thousands of sole traders are missing out on deductions when they complete their self-assessment tax returns

In an effort to help, this guide will look at some lesser-known allowable expenses for sole traders and how to claim them. 

Specifically, we’ll be covering:

  • What are allowable expenses?
  • Charitable donations
  • Business mileage
  • Office supplies
  • Home expenses
  • Clothes
  • Unpaid invoices
  • Business-related subscriptions

For more general advice about setting up your sole tradership, then check out our article, “10 things you should know about setting up as a sole trader”.

What are allowable expenses?

When you’re a sole trader, you will have certain running costs that are essential to carry out your business operations. And some of those costs can be deducted from your total income to reduce your tax bill. Costs like these are called allowable expenses.

For example, if you make £30,000 in a year and claim £5,000 in allowable expenses, you’ll only have to pay tax on the remaining £25,000. That remaining figure is called your taxable profit, or taxable income. 

You can only claim costs as allowable expenses for things that are used exclusively for running your business.

The following are common allowable expenses, as outlined by HMRC:

  • Office costs
  • Travel costs
  • Clothing expenses
  • Staff costs
  • Things you buy to sell on
  • Financial costs
  • Costs of your business premises
  • Advertising or marketing
  • Training courses related to your business

You can claim expenses like these when you complete a self-assessment tax return. 

You can also claim capital allowances. This is similar to allowable expenses, but it’s usually for one-off payments on big items like vehicles, equipment, and machinery. 

Charitable donations

Giving money to charity should be encouraged, so it helps when you know it’s an allowable expense. 

As a sole trader, you can donate to charity through these methods:

  • Gift Aid
  • From your wages or pension through a Payroll Giving scheme
  • Land, property or shares
  • In your will

The amount of tax relief you can claim from charitable donations will differ depending on the way you donate and the rate of tax you pay. 

Business mileage

Travel costs can quickly add up, especially if you have to drive a lot for your business. As a sole trader, you can claim any of these travel costs as an allowable expense:

  • Vehicle insurance
  • Repairs and servicing
  • Fuel
  • Parking
  • Hire charges
  • Vehicle licence fees
  • Breakdown cover
  • Train, bus, air and taxi fares
  • Hotel rooms
  • Meals on overnight business trips

To claim costs like these as allowable expenses with traditional accounting, you’ll need to keep detailed records of all the payments.

Alternatively, you can choose to claim a flat rate of mileage through simplified expenses, 

For vans and cars, you can claim 45p per mile for the first 1,000 miles. After that, you can claim 25p per mile. 

For motorcycles, you can claim 24p per mile. The number of miles you travel doesn’t change it. 

Office supplies

Almost everything you’ll use around an everyday office can be claimed as an allowable expense, including:

  • A desk phone
  • A work mobile
  • A fax machine
  • Postage costs
  • Stationery
  • Printing, copying, and laminating
  • Printer ink and cartridges
  • Computer software

You can claim more expensive items, like computers, as capital allowances. 

Home expenses

If you’re running your business from home, you can even claim a proportion of your home running costs as allowable expenses, such as:

  • Heating
  • Electricity
  • Council Tax
  • Mortgage interest or rent
  • Internet and phone bills

Because you can only claim a proportion of your home expenses, you need to figure out how much you spend just for work. 

You can do this by dividing your costs by the number of rooms in the house you use, as well as the time you spend working in those rooms. 

Clothes

You can claim the cost, in full, of work clothing as an allowable expense. 

The kinds of clothing you can claim are:

  • Work uniforms
  • Protective clothing like PPE
  • Costumes for acting and entertaining

It has to be clothing that is used exclusively for work. So you can’t claim a shirt and tie on a proportional basis, like travel costs. 

Unpaid invoices

If you’re completing your Self Assessment tax return using the traditional accounting method, then you’re allowed to claim unpaid invoices as an allowable expense. 

The traditional accounting method means you record all income and expenses as soon as you invoice a customer or receive a bill. 

Sometimes, your customers might not pay their invoices, leaving you with recorded income but no actual cash. 

This is sometimes referred to as “bad debt”, and you can claim the full amount you’re owed as an allowable expense. 

Subscriptions

Another lesser-known allowable expense is for subscriptions.

If you’re subscribed to any publications or services that are exclusively for business, then they can be claimed, including:

  • Professional organisations
  • Trade publications
  • Academic journals
  • Union memberships

Record your expenses with a simple app

It can be time-consuming to keep track of all your expenses throughout the year. That’s why thousands of sole traders use the Countingup app to make their bookkeeping easier

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.

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