In this blog we explore just that, to give you an idea what it’s like to operate as a sole trader, and whether it’s the right business model for you.

What is a sole trader?

A sole trader is a person who owns and runs their business as an individual, and whose company isn’t classed as a separate legal entity from them as a person. For more information and a detailed look into what a sole trader is and how they operate, take a look at our blog.

Are sole traders entitled to claiming expenses?

Absolutely! Some people believe that you have to have your own Limited Company in order to be able to claim expenses, but that simply isn’t the case. Whilst you’re not able to claim as many expenses as someone who’s limited, you’re still entitled to claim certain tax reliefs.

What is tax relief?

By claiming tax relief on your business expenses (so long as they’re allowable) you’re able to keep hold of more of your sole trader income. Tax relief can be used to offset against your taxable profits, when you file your self-assessment tax return with HMRC.

If you’re VAT registered you’ll also be able to claim the VAT you’ve paid on goods and services for your business in your quarterly returns.

What can you claim as an expense?

Uniform or work clothing – If the uniform you wear for your work is exclusively for this use, then you’re able to claim the tax back. However, if the clothing could also be used for everyday wear, (and not therefore purely for the purpose of completing your work), then it won’t be eligible for a work clothes tax rebate. You can read more about this on the GOV.uk website.

Travel and expenses incurred in the running of your vehicle – Whilst you are able to legitimately claim your travel expenses as a sole trader, there are some aspects you need to be aware of. Commonly as a sole trader you’ll use your vehicle for both work and personal use, therefore you’ll only be able to claim for the elements that enable you to complete your job (such as fuel, parking, repairs, servicing, breakdown cover and insurance). Your travel between home and work is not included, nor are any speeding or parking fines.

One option you do have is to claim your business mileage. For the first 10,000 miles travelled in any tax year you’re able to claim 45p per mile, then any additional miles are 25p.

You can also claim for train, plane, or other travel costs, so long as the journeys are solely for business purposes.

Buying or leasing a vehicle

If your job requires you to travel to your client’s premises and you have a number of tools, you’ll more than likely need a van or car. If you purchase one for your business, it will be listed as a fixed asset and classed as a form of ‘plant and machinery’. This will allow you to claim capital allowances on the value of the vehicle, thus reducing your taxable profit.

If you decide to lease rather than buy, you can do so with the following three options:

1. Hire purchase
2. Finance lease
3. Operating lease

Each of these options carry their own rules and regulations when it comes to what you’re able to claim back in tax, so it’s always advisable to discuss your plans with an accountant before making any purchases. For more information on company cars, take a look at our free guide.

Tools and equipment

It’s possible to claim tax relief on the purchase and maintenance of tools and other equipment that is required in order for you to complete your job. When first purchasing equipment, claiming relief will be in the form of capital allowances or as an allowable expense, depending on which basis you’re using, again your accountant will be able to advise you on this.

Household expenses

If you work from home you’re able to claim a portion of your household bills, and the amount you can claim is based on your total bills, the area in which you work and the duration you’ve used it for.

To be able to claim you must make the space in which you work exclusively for this purpose only during working hours, which also allows you to avoid paying Capital Gains Tax when you come to sell your home.

The following expenses are classed as tax deductible:

1. Mortgage interest (excluding the capital repayment aspect)
2. Rent
3. Council tax
4. Electricity, water and heating costs
5. Property repairs and cleaning costs

To calculate the amount you can claim you’ll need to decide how much space your work area takes up from your total overall home. For example if your home has ten rooms and you use one for work, you’ll need to calculate 10% of your household expenses as listed above, divide it by seven, then multiply it by five (or the number of days you work). This will give you the amount you can claim.

Training courses

Training courses are deemed as an allowable expense, but it must be relevant to your chosen field of expertise and give you the opportunity to further your career. For example, if you were a plumber and needed to complete training in order to learn the latest safety information, this would be claimable.

HMRC’s tool to help you see if an expense is claimable

HMRC’s simplified expenses calculator allows you to see if your business costs are allowable. It allows you to determine your business expenses using flat rates rather than calculating it as a specific cost to your business. Flat rates can be used to cover:

• Business costs for cars and vans
• Working from home costs
• Living costs from running your business from your home

This tool is to be used as a guide rather than an instructional piece of legislation, and as always we advise you running your costs past an accountant to see what you’re able to legitimately claim as a business expense.

How can Vantage help?

We are expert small business Sole Trader accountants with offices in Dorset and Hampshire. If you want the peace of mind that all the legal bits are under control plus the best advice to help you to save more of your hard-earned income, then Assure Accountants can help. We can also advise you on whether you’d be financially better off as a Limited Company or a Partnership.

For a fixed monthly fee, we will submit all the necessary paperwork accurately and on time with HMRC. We’ll be available for advice whenever you need it and help you set up and run your business in the most tax efficient way as possible.

We know tax and accounting inside out, so you don’t have to; trust us to give you the best advice and you can focus on running your business. Get in touch to find out more today.

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You may be doing this already, which is fantastic, but it’s important you regularly review your tax planning strategies to see if they are still tax-efficient. Plus, changes which were announced in the 2018 Budget means some of these strategies may have changed. As an owner – manager of a business, here are some things that our team think you need to be aware of:

Capital allowances

The Chancellor announced in the 2018 Budget there will be a temporary increase to the Annual Investment Allowance (AIA) from £200,000 to £1 million. This is available for capital expenditure, such as plant and machinery which is purchased from 1^st January 2019 to 31^st December 2020.

While most welcome this increase. It may cause problems for some businesses whose chargeable period spans 1^st January 2019. If this is the case the business’ transitional chargeable period comprises of:

1. the AIA entitlement, based on the £200,000 cap for the portion of the period falling before 1 January 2019
2. the AIA entitlement, based on the temporary £1,000,000 annual cap for the portion of the period falling on or after 1 January 2019

Source: HMRC

The business’ maximum Annual Investment Allowance for their transitional period would be the total of i. + ii.

For example, a business who has a chargeable period of 1 June 2018 to 31st May 2019, their maximum AIA would be:

1. Proportion for the period 1 June to 31^st December 2018 is 7/12 x £200,000 = £116,666
2. Proportion for the period 1 January to 31st May 2019 is 5/12 x £1,000,000 = £416,666

Total of £116,666 + £416,666 = £533,332.

In some cases, it may be appropriate to revise the chargeable period to align it with the calendar year.

Employer pension contributions

Employers can make a lump sum contribution into an employee’s pension scheme. And, as it’s classed as an allowable business expense, it can be deducted off the business’ profits, therefore reducing the amount of Corporation Tax that is due.

However, at your year-end, you can’t account for future pension contributions as they must be paid by the year-end for it to be a deductible expense. Also, if you plan on making a large contribution, this may have to be spread across the year.  To understand more about the deductibility and amounts that can be claimed, our directors can assist on +44 330 174 4922.

Claim for everything you can

Every business has 12 months after its accounting period ends to file a Company Tax Return, and a further 12 months to make amendments to this return.

It’s important that you use this period to check to see if there is anything else you can claim for. Such as losses against the previous year’s profit. Or, tax reliefs such as the ‘creative industry relief’ which is available to companies who work in TV and film industry.

Something else worth considering, is if the business has acquired commercial property with fixtures that may be eligible for capital allowances, then the business has two years from the purchase date to raise a query in conjunction with the vendor, to agree on how much of the purchase price is eligible for capital allowances and maybe AIA.

If you’re looking to get your year-end planning back on track, there is no better time to do it. Speak to one of our Directors on +44 330 174 4922 to discuss these points further in detail, or send us a brief message through our website and we’ll call you back.

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