As an accountant, these are the most common type of questions I get asked by my sole trader clients (the answers below may be different if you run a limited company!).
There are so many tax rules and many grey areas especially when it comes to business expenses!
Everyone wants to make sure they are claiming everything they can in order to reduce their tax bill. HMRC like business expenses to be wholly and exclusively for the business so things with dual-use are usually not able to be claimed for.
So I thought it would be useful to cover some of the common expenses I get asked about.
We all have workwear of some description so can anything be claimed for?
- Protective clothing: Such as high vis vests, helmets, safety boots, overalls, trousers with padded knees etc.
- Uniforms: HMRC define this as being “a set of specialised clothing that is recognisable as identifying someone as having a particular occupation”. Such as nurses, police, fire fighters etc
- Costume: if you are an entertainer you can claim for your costumes. If you are a musician then jeans and a t-shirt will not count as a costume but if you are a clown you can claim your clown outfit!
- Branded items: Clothing with your business logo on them. It needs to be easily visible (so not too small) and permanent (stitched/printed on rather than a removable badge).
- Anything that could be seen as your everyday clothes (even if you only wear them only for work). Such as suits, shirts, dresses etc
This also includes evening wear if you need to attend an awards ceremony.
HMRC will look at the existing trade and provided the training undertaken is to update existing skills and expertise relating to the business then it is usually allowed.
Examples could include:
- An accountant going on a tax update course
- A hairdresser going on a hair colouring course
- An electrician learning about new regulations
But if it is a course to become newly qualified in something then the costs will not be allowable.
Examples could include:
- Driving instructors initial training costs
- An electrician doing a plumbing course to expand their business
Training costs are a very grey area as sometimes they could be argued either way so it is worth keeping hold of course notes as evidence of what the course entailed.
As a general rule, the cost of your food and drink cannot be claimed as a tax-deductible expense. This is on the basis that you must eat to live and so not wholly and exclusively for your business.
There are some exceptions:
- Where the nature of your work is itinerant (e.g. a construction worker who works in a different location each week)
- Where you make the occasional business trip (e.g. work in Northampton but travel to London for the day and grab some lunch)
- Where you are on a business trip and required to stay away any food and drink can be claimed
A point to note is when incurring costs make sure they are not excessive as HMRC could disallow that 3-course meal and champagne at a Michelin star restaurant!!
Entertaining customers and potential customers
As a business owner you want to keep your customers happy and one way of doing this is by taking them out for a meal or to watch a football match.
Any costs incurred entertaining your customers or potential customers are not allowed for tax purposes.
It’s always nice to show your appreciation to customers and suppliers during the year by sending a gift but are the costs allowable?
As a general rule, no tax relief is given on the cost of giving business gifts as they are considered to be entertaining.
Examples would include flowers, chocolates, wine and turkeys at Christmas.
There is an exception where the gift would be considered to be advertising. To qualify it would need to be one of the following:
- A free sample of a product provided in its business to advertise to the public (e.g. a gin distillery could give away samples of their gin and the cost be allowable)
- An item including an advertisement such as a business logo where the value is less than £50. It cannot include food, drink, tobacco or exchangeable voucher (e.g. a branded diary or calendar)
There are different rules when giving gifts to employees so worth double checking if you plan on doing this.
A lot of sole traders operate their businesses from home and therefore, want to offset some of the costs.
This is ok as long as you calculate the proportion of the costs based on the number of rooms used and/or the amount of time spent working from home.
HMRC have some simplified expense rates available which can be used instead on the actual calculation. These rates are based on the number of business hours worked from home each month.
- 25-50 hrs = £10 per month
- 51-100 hrs = £18 per month
- 101hrs+ = £26 per month
It may be worth calculating both ways to see which would be better for you.
Not sure whether you can include an expense?
As you can see from some of the answers above there are many answers that start with “it depends” and no one size fits all answer.
If you are unsure it is always worth double-checking with your accountant beforehand or including a note to them when sending in your accounting records.
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