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Sole Trader Tax Tips

Whatever type of sole trader you are, you’re sure to incur costs as a result of running your business. You will be taxed only on the profits that your business makes. That’s your income minus your personal allowances and expenses.

That means if you turn over £50,000 and have expenses of £15,000, you’ll pay tax on only £35,000 of your sales. But make sure your expenses are necessary. Although it’s cheaper to buy stuff through your business, it makes little sense if you don’t need it.

Below is a list of the main expenses you can take as tax write-offs as a sole trader.

Accountancy fees

There’s a good chance you will want to enlist a professional accountant to work out how much tax you should be paying. One advantage of being a sole trader means you can claim back the fees as a tax write-off.

Bank charges

If your business account happens to incur overdraft fees, you have business credit-card charges, and you pay interest on business loans, you’ll be able to class them as business expenses.

Travel

There’s a strong chances that you have a car or van that you use at least in part for work. If you make business trips in your car, you’ll be able to at 45p per mile for the first 10,000 miles of any financial year, then 25p per mile for any distance after that.


Alternatively, you can use a simlified method where you work out what proportion of your car usage has been for business. To do this, you calculate your total annual running costs, including insurance, MoT, repairs, and fuel. Next, calculate the percentage of miles you do on business and apply it to your total running cost.

Below is a list of the travel expenses you can claim:

  • Insurance
  • Fuel
  • Parking
  • Breakdown cover
  • Hire charges
  • Repairs and servicing
  • Bus, train, taxi, and airfares
  • Hotel rooms
  • Eating out during overnight stays
  • Vehicle licence fees

Magazine and book subscriptions

It’s important to keep up with industry news and trends, so maybe you subscribe to Bike Magazine or Heating and Plumbing . You can claim back the cost of books and magazines but they must be directly relevant to your business.

Business Premises

If you work from home some of your household expenses can be claimed depending on the number of rooms in your home are used for business.

As a sole trader working from home, you can write off a proportion of your mortgage interest, utility bills and insurance costs against tax. You can calculate this proportion by doing a rough estimate of the square footage you use, or base your calculations on the number of rooms you use and for how long.

Equipment

Nowadays it’s safe to say that every sole trader needs at least one computer, and these can be claimed as tax write-offs. The same applies to other equipment that is vital for the running of a business.

Advertising and promotion

As a sole trader, you’ll also need to promote your business. That means PR, marketing and advertising. Whether you use an agency or an individual, their fees can be written off against tax.

Communications

You can claim for telephone calls and texts that relate to work. However, it can be tricky keeping tabs on which calls and texts are for personal use and which for business. Sometimes it makes sense to use two mobile phones – one for business and one for personal use, then submit the business-phone receipts as one entity.

You can also write off a proportion of your broadband bill, although you’ll need to keep a record of the hours you spend online and how much is business and how much personal use. An alternative is to monitor usage for a week or two every quarter to get a representative figure.

Training

Training is important in order to keep your skills up to date with ongoing professional development. Training can also be claimed back against your profits.

Insurance and Fees

There’s a good chance you’ll need insurance for your business. This can include public liability insurance or professional indemnity insurance. That’s also tax-deductible.

Professional fees such as membership costs are tax-deductible if ‘the activities of the body are of direct benefit to, or concern the profession practised in, the performance of the duties of the employment’.
It’s clear you should keep accurate records of all these expenses, plus all your receipts in hard copy or scanned form, to support your claim.

Sole trader taxes

If your turnover exceeds the £85,000 VAT (Value-Added Tax) threshold in any rolling 12-month period, you’ll need to be VAT registered.

So, when you’re VAT-registered, you charge your customers VAT on VAT-able goods and send it to HMRC. You can reclaim VAT on items that you buy for the business. The rate of VAT in the UK has been 20% since 2011.