Many people think that business expenses only exist in larger corporate companies. As a freelancer (sole-trader or limited company), no matter the size of your business, you’re eligible to claim expenses too!
Naturally, businesses incur running costs, but the good news is that many of these costs can be claimed as business expenses, meaning you’ll pay less tax and get to keep more of your hard-earned money.
To account for your expenses properly, you need to keep accurate records of everything. Bear in mind that you’re legally bound to keep these records for six years.
As a sole trader, you can claim back any expense you’ve incurred that relates directly to your business in much the same way as limited companies. When there are both personal and business elements to your claim it’s unlikely to be accepted, because the expense would be needed regardless of the business.
For example, if your monthly mobile phone bill is £50 but you only use your phone 50% of the time for business use, you can only claim for £25 as an expense. For sole traders who want to claim travel expenses, keeping track of your expenses such as business mileage is essential, as you’ll need to provide HMRC with a breakdown of journeys and mileage covered. Also, If you’re claiming tax relief for fuel when using a company owned car, you must keep hold of all of your receipts.
As a Sole trader, you’ll claim your business expenses by filing a Self Assessment. Although you can file your self-assessment anytime from the end of the previous tax year on 5th April, typically it is done at the beginning of each year with a deadline if January 31st
Most popular expenses claimed for by Sole Traders:
- Accountancy, Lega and other Professional fees
- Bank fees
- Business premises
- Resalable goods
- Subscription costs
- Training costs
As mentioned above, your business will incur running costs whether you’re a sole trader or limited company. Similarly to being a sole trader, when it comes to claiming business expenses for your limited company, there are a few things you should follow:
- Make sure you maintain an accurate record of all running costs, including VAT receipts. This will come in handy if you’re queried about your business expenses claims in the future.
- You can only claim for the expenses that you incur wholly and exclusively during the everyday running of your business.
- You can’t claim for expenses that have a dual purpose for business and personal use, e.g. if you decide to extend a business trip abroad for leisure purposes, you can only claim for the business days, not the additional leisure days.
- Employees can claim expenses too, so it’s worth creating a company expense form and policy to ensure that everyone understands how much they’re allowed to spend and where. Remember to tell them to keep all receipts too!
Most popular expenses claimed for by Limited Companies:
- Start-up Costs
- Travel expenses
- Parking costs
- Road toll fees
- Congestion charges
- Hotel rooms (within reason)
- Food and drink on overnight trips
- Public transport, including train, bus, air and taxi fares
- Vehicle Insurance
- Vehicle repairs and servicing
- Professional development
- Annual staff party up to £150 pp per event
- Phone bills
- Professional subscriptions
- Bank Fees
- Marketing & Advertising
- Business Insurance
- Health and eye checks