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There are plenty of reasons that people decide to go self employed and start working for themselves. The idea of being able to work when, where, and how you want to can be pretty appealing. We explain what the tax advantages of being a self-employed sole trader are, including tax allowances and reliefs.

Claiming expenses for your self-employed business

As a sole trader you’ll be able to claim for some of costs and expenses that your business incurs. The terminology can be confusing, because this makes it sound like you need to submit a separate claim to HMRC.

Claiming allowable business expenses actually means that you offset the amount of allowable expenses against your tax bill. So, if your tax bill is £1,000, and you have £200 worth of expenses, this reduces your tax bill to £800.


Capital expenses

Capital goods are assets which the business needs to operate, but which aren’t for sale to the customer. An example of capital goods can be machinery or equipment which the business uses to produce things to sell.

The business might incur one-off costs if you purchase or improve an asset, and those expenses may be eligible for relief as capital allowances.

It might include expenses as a result of buying or improving:

Not all types of capital expenditure are eligible for tax relief though, and there are special rules for applying.

How to claim for dual purpose expenses

If expenditure is for something which is ‘wholly and exclusively’ for the business, it will likely be eligible for tax relief.

There may be instances where an expense is used both by you personally, and by the business. For instance, utility bills if you have an office in your home, or you use your car for leisure and for your business work. These are known as dual purpose expenses.

It is possible to claim tax relief on dual purpose expenses, as long as you can identify the proportion of the cost which was used by the business.

What can I claim for?

There are a number of expenses which can be claimed for, as long as they are used for the business. Among these are stationery and phone costs, business loan interest, advertising, uniforms with a logo, accountancy and professional fees plus many more.

Some allowances, expenses and reliefs are more likely to be claimed than others. Some of the main types are capital allowances, motoring expenses, expenses which are related to premises and the cost of administration.


Tax return services

Vehicle expenses

Motoring expenses are slightly more complex as there are regulations which govern the type of allowance you may claim. For instance, if you claim capital allowances for the cost of buying your business vehicle, this includes an amount to cover mileage.

Alternatively, you can claim a fixed amount for business mileage. It may be necessary to obtain professional advice to discover which method would be most beneficial to you.

Other rules

There are special rules and situations when you may be eligible to claim a specified tax allowance or relief. These include being a farmer, artist or market gardener. If you take in a lodger you may be eligible for the Rent a Room scheme which lets you receive rent tax free up to a specified amount.

It is possible to claim tax relief on business losses which may be set off against other income in the current or previous year. If your business commenced within the last four years or has ceased, you may set off losses against income in the last three years.

Talk to one of the team about our professional accounting services, to help your business save money. Call 020 3355 4047, or use the live chat button on screen. You can also get an instant quote for our online accounting services here.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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