Allowable Expenses for Tradespeople: What Can I Claim?

For a sole trader, allowable expenses are business costs HMRC lets you take off your income before working out your tax. So they lower your tax bill. Paying for something from the business account doesn't automatically make it allowable.

It's one or the other: if you use the £1,000 trading allowance (the tax free amount for small earnings), you can't claim expenses as well.

The rules are different for companies, employees, big purchases, things you use personally too, and VAT.

• Allowable expense: a business cost you can take off your income for tax.
• Trading allowance: £1,000 a year of trading income that's tax free. Use it, or claim expenses, not both.
• Cash basis: the usual way for sole traders to keep their books: counting money when it actually comes in or goes out.
• Traditional accounting: counting money when you invoice or get billed.
• Capital allowances: a separate way of claiming for bigger things you keep, like vehicles and machinery.
• Simplified expenses: flat rates you can use for some costs instead of working out the real cost.
• Mileage log: a record of each business journey: date, where, why and how far.

Common doesn't mean automatic. Each of these has conditions:

• Phone, software and stationery for the business
• Premises, and some working from home costs
• Travel and van costs, using the right method
• Tools, kit, materials and protective clothing
• Insurance, some finance costs, and accountant's fees for the business (not for doing your own tax return)
• Advertising, your website and marketing
• Staff and subcontractors, done properly

Vans, tools and bigger purchases

It depends how you keep your books. With cash basis, a van or equipment you keep is claimed as an expense, but a car goes through capital allowances. With traditional accounting, vans, cars and equipment go through capital allowances.

Only claim the business part.

Your split needs evidence, and should reflect how you actually use it.

Some costs feel like business, but aren't allowed:

• Money you take out for yourself, and living costs
• Fines for breaking the law
• Normal clothes, even if you wear them for work
• Entertaining customers, mostly
• Paying back the loan itself
• The personal part of anything
• Anything you're already claiming another way

For anything big or unusual, check HMRC's guidance or ask your accountant.

• Date, supplier and amount
• The receipt or invoice
• What you bought
• Why it was for the business
• How you split any personal use
• Who approved it, for a company
• How VAT was handled, if registered

You don't send receipts with your return, but you must keep them and show them if HMRC asks.

Flat rates for some costs. Sole traders can use them for some van, working from home and premises costs, instead of working out the actual cost. It's optional, and doesn't cover everything.

Compare it with your actual costs, and keep the records the method needs.