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December 2022

Expenses Explained

What expenses can you claim as a sole trader?

As a sole trader and small business owner it can sometimes be difficult to know exactly what you’re entitled to claim when the time comes to get your self-assessment affairs in order.

Claiming as much tax relief as possible each year will be a massive priority, as it should be. I’m going to list out some details that, if followed, will make sure that you get to keep as much as you possibly can from your hard-earned profits.

No matter how long you’ve been self-employed, your tax-free allowance will ‘reset’ each year. Meaning that you get your allowances again and again.

Allowances and tax explained:

For the current 21/22 tax year the standard tax free allowance is £12,570, although this does tend to change every April. This means that you can earn £12,570 in profit before you have to pay any tax. This can often confuse people but in basic terms profit is your total income minus your total expenses. Then the amount that you are taxed depends on how much your profit is.
If you earn:

Let’s look at an example:

If you take £45,000 in payments from customers and have £25,000 worth of expenses to claim in total that leaves you with a profit of £20,000. This will put you in the basic rate tax bracket. If you then take off your personal allowance of £12,570 your total taxable income is £7,430. 20% of £7,430 is £1,486 and so this is what you will need to pay in tax to HMRC.

You will also need to pay national insurance which in this 21/22 tax year is £3.05 per week for profits of £6,515 and over. So, following the above example the total national insurance that would be charged is £158.60 (52 weeks x £3.05 per week). The total bill to HMRC would be £1,644.60.

Now that’s a bit clearer, let’s have a look at what expenses you can actually claim to bring that profit figure down and in turn bring your tax bill down!

It’s worth mentioning now that HMRC’s ruling on expenses that can be claimed is that they must be ‘wholly and exclusively’ for business use.

Motor and travel expenses

This is a great one that will almost certainly increase your total expenses, but it is one that needs to be considered carefully as there are a few rules to bear in mind.

Firstly, all travel expenses such as train fare, hotel rooms, taxis, air fare etc can be claimed for as long as it’s a business trip. You can also claim meals during this time if it’s an overnight trip.

In most cases as a sole trader, you’re unlikely to have a specific vehicle just for your business that isn’t used for any personal journeys. Expenses in the list below can be claimed:

Any non-business costs including speeding and parking tickets cannot be claimed.

You will need to use one of 2 methods.

The first method is to calculate what portion of the expense has been used for business and what has been used for personal. This can be done by working it out exactly or applying a percentage. Say you know that you use your vehicle 50% of the time for business and you take your car for a service and are given a £150 bill. 50% of this will be claimable against your tax, so £75 would be the figure you’d enter into your business books.

The second method, and the easier one to use, is called the simplified method. This is where instead of calculating the specific expenses you choose to claim 45p per mile travelled for business. This method uses the 45p per mile to cover the business portion of all expenses and wear and tear of the vehicle. This is usually the easiest way to go but can sometimes mean that you don’t actually claim enough if your running expenses are of a greater value. If you use the simplified method, then you can claim 45p per mile up to a total of 10,000 miles and then 25p per mile for 10,001 miles and over.

You can also claim the cost of buying or leasing a vehicle as long as it is 100% used for business.

Household expenses for working from home

Note: that if you do have a specific room/structure used just for your business that can’t be used by anybody else then this would deem it a commercial premises and would be rated. You could also end up liable to pay capital gains tax should you sell your home.

The expenses you can claim an increase for are as follows:

You can also use HMRC’s simplified expenses calculator if you’d rather be given a figure as opposed to calculating each bill yourself. This will give you an amount you can claim back based on the number of hours per month that you use your home for business use.

Equipment and Tools

Possibly the easiest expense to claim is for money spent on tools and equipment. This is especially important if you work in a trade that relies heavily on the use of equipment such as an electrician or builder. Without these tools and such you can’t carry out your job or run your business and as such it is a completely justified business expense. If you must repair or maintain said tools and equipment then you can also claim this back, for the same reason.

Other expenses

I’ve listed the main categories of expenses above but there are always other things that crop up that are more specific to different types of businesses. You might want to book a training course for example. This would be an allowable expense as long as it directly relates to your current business. If you’re thinking of branching out into a new market or profession, then this won’t be allowable. Instead, you’d need to account for this under the umbrella of your new business. Items such as stationery, a new laptop and printer, desk chair etc are all allowable just as long as they are 100% used for business.

If this all seems a bit confusing or overwhelming then please just drop me an email at and I’d be happy to explain in more detail or discuss how we can help you moving forward.