As a sole trader you will incur various expenses throughout the tax year. It is important that you know what can and can't be deducted and the calculations involved - this could make a significant difference to your tax bill!
Here are just a few examples to be aware of;
Mobile Phone Bills
You might assume that if you use a personal mobile phone for business use then this can't be claimed as an allowable expense - this is incorrect. A percentage of the annual bill can be claimed as an allowable expense based on business usage.
For example, if your total bill for the year is £480 and 70% of the phones usage was for businesses purposes then you can claim an expense of £336 (£480 x 70%).
Working from Home
As a home worker you can claim a proportion of your domestic utility bills based on the rooms you use in the property and time spent working from home.
For example, a property with six rooms of equal utility usage - one of which is used as a home office is in use for three days per week on average throughout the financial year. The annual domestic utility bills total £3,120 over the year (allowable bills include gas, electric, council tax, internet and mortgage interest or rent).
The allowable expense would be £3,120 divided by six rooms = £520, times three days a week = £222.86.
Alternatively, you can claim a flat rate of £10 per month where working 25 - 50 business hours per month, £18 per month for 51 to 100 business hours or £26 per month for 101 business hours or more.
Lets assume in this example that in those three working days you worked 27 hours. The total allowable expense would be £10 x 12 months = £120.
In this example, it would be more beneficial to claim based on the first calculation.
Car, Van and Travel Expenses
Allowable expenses can be claimed for all of the following; vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle licence fees, breakdown cover, train, bus, air and taxi fares, hotel rooms and even meals on overnight business trips.
You can't claim for non-business driving or travel costs, fines or travel between home and work.
There are two ways of accounting for the purchase of a vehicle - you can claim it as a capital allowance using a writing down allowance to deduct a percentage of the vehicles value each year (there a number of rules to this which I will come on to) or you can use simplified expenses based on mileage.
It is important that you only use one of these methods and that the calculations are correct.
The capital allowance method is the more complex of the two, it will depend on the nature of the vehicle, the vehicles emissions, whether you owned it before the start of the business - all of these factors are included in the calculation.
Lets take the example of a car purchased with a total cost of £17,500 after the business started trading in 2019, the car has CO2 emissions of 100g/km. The car is used solely for business use. As AIA (annual investment allowance) cannot be claimed on cars the item will be "pooled", this means that a writing down allowance can be claimed each tax year with the remaining balance kept in the pool for subsequent tax years. The CO2 emissions of 100g/km fall within the 50g/km - 110g/km banding so this item will go into the main pool.
The main rate allowance is 18% so a total of £3,150 can be claimed as an allowable expense.
Now lets look at the simplified expense calculation.
The car (solely used for business) drove 15,000 miles during the tax year. 45p per mile can be claimed on the first 10,000 miles and 25p per mile thereafter.
In this case we can claim £4,500 for the first 10,000 miles and £1,250 for the remaining 5,000 miles. The total allowable expense using simplified expenses is £5,750.
In this case it would be more beneficial to claim using simplified expenses.
Using a good accountant can save you money as well as time.
For a free consultation on the services I can provide for your business contact firstname.lastname@example.org or call me on 07914 794744.