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HM Revenue & Customs (HMRC) will allow you to claim lots of expenses. While most business owners probably already know about many of them, like office supplies, tools, and even your business vehicles, there are many more obscure deductions that could potentially save the UK workforce hundreds of pounds.
As a sole trader or self-employed tradesperson, knowing what you can and can’t claim as a business expense can be a learning curve. It might seem easier to overlook some of your expenses just to avoid the paperwork. However, doing this means your business could lose money and profits in the long run.
HMRC has very strict rules on what you’re allowed to claim as expenses when you're self-employed or a sole trader, and it’s vital to get clued up on them before filing your tax return.
For self-employed expenses to be classed as allowable expenses, they must have been explicitly incurred due to the running of your business.
A spokesperson from Toolbox, who specialises in small business insurance, said: “As businesses navigate the ever-changing landscape of finance and expenses, it's important to stay informed about the eligible deductions that can positively impact the bottom line. It can take a bit of effort to figure out which costs count as allowable expenses.
“To help, we’ve rounded up ten things you might not know count as a business expense - so you don’t have to.
“Whether you’re just starting out in business or are getting ready to file your tax return, we hope to help outline what business expenses you can claim as a sole trader or limited company.”
If you want to lower your tax bill even further, you should make sure you’re claiming all of these surprising and often lesser-known allowable expenses.
10 surprising business expenses eligible for deductions:
1. Tax allowance for tools
If you need to buy tools or equipment for your business, you can exclude these costs from the calculation of your earnings as an expense. Please note that the tools and equipment shouldn’t be used privately by employees.
You could also think about claiming a tool allowance if you’re an employee who buys tools for work. If you’re not reimbursed directly by your employer, you could claim tax relief through your tax code.
2. Financial and legal costs
Many financial and legal costs will count as allowable business expenses and qualify for tax deductions.
When it’s time to fill out your Self Assessment, don’t forget to include:
Please note that legal fines you’re given for breaking the law can’t be claimed, for example a speeding ticket when travelling to work.
3. Unpaid invoices and bad debt
If you’ve ever dealt with, or are currently dealing with, a tricky customer where any invoices and debts can’t be recovered, this business expense could relieve some stress. If you use traditional accounting, you can claim back money that you won’t be receiving from the customer.
These are called bad debts. You can only write them off if you’re sure they won’t be recovered in the future. It’s worth noting that you can’t claim them if you use cash basis accounting either.
There are some exemptions, such as debts that are not included in your turnover and debts related to the disposal of fixed assets.
4. Tax relief on charitable donations
Individuals can donate to charity without paying tax if they give through Gift Aid, or from their wages or pension through Payroll Giving.
Any donations you make through the Payroll Giving scheme are taken before your income tax is calculated. This means you won’t pay income tax on the amount you donate, but National Insurance will be applied.
5. Tax on business phone lines
Paying for you or your employees to have a home phone can include expenses such as telephone line rental, business-related call charges, and private call charges. Better still, if the phone is only used for business calls, you don’t have to worry about deducting or paying PAYE or National Insurance (NI).
This means you can remove the cost of running the business phone line from your profits as an allowable business expense.
6. Plant and machinery
When you buy assets for your business, you could claim capital allowances on them. In most cases, you can deduct the item’s whole value from your profits before paying tax. However, if you owned it before it was used in your business, or if it was a gift, you can only take away its market value.
You can claim capital allowances on business cars and vehicles, some fixtures like kitchens or bathrooms, and more!
7. Employee training payments
You can claim employee training costs as a business expense, as long as the travel, course, or textbooks are solely for work-related training.
8. Employee clothing
You do have to report uniforms to HMRC, but you won’t have to pay tax or NI on most of them. This counts for protective clothing your employees need to do their job, and a uniform that they only wear for work. To be exempt from tax and NI, they’ll have to be essential work-specific items of clothing to class as an allowable business expense.
9. Marketing costs
Another allowable business expense you can claim on your Self Assessment is the majority of your marketing costs. HMRC allows businesses to claim for expenses like:
There are some exceptions to this allowance, for example, you can’t claim for what you spend on event hospitality, or entertaining clients, suppliers, and customers.
10. Tax relief on subscriptions
And, lastly, businesses can add subscriptions and memberships to their expense claims if they’re work-related. If you have an annual membership with a professional trade organisation for example, make sure to add this to your file.
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