Deductible Expenses in the UK: A Guide for Sole Traders
Record keeping: While there are many other number-centric things you’ll need to worry about when building and managing your business, most of them pale in comparison to this task in terms of tediousness and difficulty.
As Her Majesty’s Revenue and Customs (HMRC) continues to double down on enforcing regulations that eventually become more complicated, it’s clear that record-keeping is no longer the “simple” task it used to be. In the case of sole traders, managing sheets, receipts, and reports are especially difficult because of the hard work it involves, especially when claiming allowable expenses to pay less tax.
Why keeping records matters for your savings
Over the years, the HMRC has devised different ways that self-employed professionals or sole traders can save on the costs they incur during their operations. However, claiming allowable expenses is the foremost way to do so.
As a sole trader, you’ll run into different expenses and costs that are eligible for claims that will allow you to save as much money as possible. By taking the time to become extra tedious with your records and improving the approach you use to maintain them, you’ll get to stay mindful of the costs that you can capitalise on for more savings!
What expenses are eligible for tax relief?
Unfortunately, being eligible for claiming certain expenses on your annual Self-Assessment tax return also involves keeping a keen eye on your record-keeping work, especially when classifying eligible costs.
Beyond maintaining the records of your sales, income, business expenses, and VAT records, claiming a deduction on your tax also requires knowing specifically what you can claim. While the list of accredited expenses by the HMRC itself continues to grow, here’s a list of the most common eligible ones that are most likely on your ledger at the moment:
1. Utility costs
If you’re a sole trader who has been working from home for quite a while now, it’s worth noting that you’re entitled to receive a refund from the deductibles generated from your utilities.
The standard formula that you’ll need to follow when claiming your utilities as a tax-deductible expense is the total amount of your bill divided by the number of rooms in your house. Then, the resulting figure will be divided by your work hours. This same eligibility also applies to the most common forms of billable utilities in your home, namely: gas, electric, water, broadband, and telephone bills!
2. Professional financial costs
Another tax-deductible set of expenses that you can receive significant returns on is the array of legal and financial costs incurred by your operations.
Whether you hire an accountant to help take care of your costs, forecasts, and financials or a lawyer to help you restructure your company, you can claim the costs involved with hiring a professional. Apart from services, expenses incurred from overdraft charges, professional indemnity insurance premiums, and lease payments can also be claimed during your self-assessment tax return!
Another set of eligible expenses that any sole trader can claim during their upcoming tax return is the various subscriptions they pay for that are vital to their operations.
Typically, subscriptions like trade publication purchases, membership fees in local associations, or industry group membership fees can be claimed during your self-assessment. Although this may not seem like such a large saving point than other eligible costs in your business, the total figure you save from your subscriptions will always make for significant savings in the long run!
Although record-keeping can be a tedious task no matter which way you look at it, it can prove to be useful once it comes to claiming deductible expenses, especially if you know which costs are eligible. With this guide’s help, you can use your records, reports, and receipts in the best way possible and help ensure that you get the largest savings during your next self-assessment tax return!
Claiming eligible expenses on self-assessment tax returns can be difficult if you take on everything by yourself, but it helps to have a personal tax affairs specialist in the UK help you out. If you want to rake in more savings and are looking for accountancy services with the best option you can afford, we’re here to help – get in touch with us today!