Sole traders – do you need help with your tax return?
As a sole trader, legally you and your business are one and the same. Acting as the exclusive owner of the business, you’re entitled to keep all profits after tax has been paid. The downside is this means that you’re also liable for any losses and failure to comply with UK tax regulations.
However much tax you pay, as a business owner you want to take advantage of any tax deductions you can claim. But at the same time, you don’t want to run the risk of any errors on your self-assessment and including something you shouldn’t. Navigating tax regulations can be a nightmare, so we’ve compiled a simple list of expenses that you can claim tax relief on. With self-assessment returns due shortly we asked our friends at CountingUp for some advice on the expenses that are tax deductible.
Top 10 deductible business expenses
The expenses that you can claim tax relief on fall under three main categories:
- Working from home
Working from home
- Council tax, gas and electricity
- Depending on how much time you spend working from home, you can claim tax relief on a percentage of gas usage, electricity costs, and council tax bills.
- If you work from dedicated business premises, such as an office, you can claim relief on the full cost of your heating and lighting bill.
- If you use your home phone line or personal mobile for business phone calls, you can claim relief on a percentage of the line rental as well as the full cost of business use of your phone.
- Make sure your service provider gives you an itemised bill
- Remember that a flat rate allowance claim for home business use doesn’t include business calls made on your home line. If you have a separate phone line or mobile for business use, you can claim tax relief on all the calls and line rental for this phone.
- IT equipment and electronics
- If you intend to use your new computers, laptops or tablets for a mix of business and personal tasks, it’s a little more complicated. You’ll need to work out how much of the usage will be work-related and how much will be personal, and then claim for only the business use of the equipment.
- If you’re bringing your own equipment or electronics to your business, you can’t claim for the price you originally paid. To do things by the book, you need to work out its current market value (check eBay or similar sites for an idea of current value) and claim tax relief for that amount.
- Purchases of second-hand equipment are an allowable tax expense.
- Any policy that doubles up to include personal usage, isn’t eligible for tax relief. But if you’ve taken out an insurance policy that relates specifically to your business (for example, professional indemnity insurance or contents insurance) for your office premises, you can claim relief on the full cost.
- Entertaining employees on your payroll does make the list, depending on several qualifying factors. To count as a “qualifying event” and not a taxable benefit for your employees, an event must:
- Be an annual event (e.g. a Christmas party)
- Open to all staff members
- Cost less than £150 per head
- If an event doesn’t meet all these criteria then the whole cost of the event becomes a taxable benefit. At times entertaining clients certainly feels like it should be a legitimate business expense, particularly if you have to do it often. However, this type of entertaining isn’t included in the list of allowable deductions.
Gifts to non-employees
- In order to be eligible for tax relief, gifts to non-employees must:
- not be food, drink, tobacco or vouchers
- cost less than £50 per recipient, per year
- be clearly marked with your company name
- There are a couple of options for working out your tax relief allowance on any of your travel as a self-employed business owner:
- figure out your overall vehicle running costs and claim back a percentage.
- work out your business mileage and add this to your accounts, using HMRC’s approved rates
- Tip: the second option is simpler but the former is probably the best option if your car is fairly expensive to run
- Business journeys by bike can’t be claimed by sole traders. But if you have employees then they can claim tax relief on bicycle travel for business purposes.
- Parking fines and speeding tickets
- You may not be surprised to learn that you can’t claim relief on parking fines or speeding tickets.
- Hotel costs
- You can only claim tax relief on hotel costs if business was the sole purpose of your stay. If you want to mix a little holiday in with your trip, you can still claim tax relief but only on the costs that you can prove were strictly business related.
What are your deadlines?
- For online submission of self-assessment tax returns for year ending 5 April 2017 – for HMRC to collect tax through PAYE tax codes where they owe less than £3,000 – this is 30th December 2018.
- For online self-assessment tax returns for 2017/18 tax year, this is midnight on 31st January 2019.
- Your deadline for paying tax bill for tax year ending 5 April 2017/18 is also midnight 31st January 2019.
Business help for sole traders
Smaller businesses are remarkable for their ability to perform all the same functions as large businesses with fewer people. But they can be stretched incredibly thin with independent professionals often entering fields where they lack experience and the result can be lost efficiency and expertise. In fact, Freshbooks data revealed that 85% of independent professionals say that business development can be a struggle. Hiring a consultant or expert adviser for critical areas such as recruitment and accounting can help you fill in your knowledge gaps but it also costs your company money.
Thanks to the digital age and the ideas of ingenuitive entrepreneurs who don’t want to learn as they go and run the risk of mistakes as they do so, there are all sorts of organisations that now make tasks such as business finance and hiring staff a lot easier. Self-taught financial management can cause problems for small businesses. Make life easier for yourself by keeping all of your business accounting and banking in one place. Visit the Countingup website for more information.