What expenses can I claim as a sole trader and which are not allowable?

All costs associated with running your business can be claimed but whilst you might think some costs are business expenses HMRC may think otherwise!

Here are a few of the expenses which you can and cannot claim.

Advertising and Marketing

You can claim for the costs of advertising your business such as your website, newspaper advert, bulking mailings.

You cannot claim for the costs of entertaining customers or potential customers or suppliers.

You cannot claim for event hospitality.

Bad debts

If you have included income in your turnover that you know will never be paid to you you can show this as a bad debt.

If you use cash accounting basis any bad debt will not have been included in your turnover as it is only included when the invoices is paid.  Therefore you cannot claim unpaid invoices as a bad debt.

You cannot estimate a bad debt and claim this as a cost.

Bank and other financial charges

You can claim bank charges, credit card charges, overdraft interest, loan interest, hire purchase interest and lease costs.

However if you use the cash accounting basis for reporting you cannot claim any finance costs over £500 per annum.

The repayment of loans, overdrafts or finance agreements cannot be claimed as a business expense.

Clothing

You can claim for the cost of purchasing protective clothing and equipment for business use.

You can claim for uniform which is specific to the job you do and will generally have your company logo to identify it as being specifically work clothing.

You cannot claim for everyday clothing for wearing to work.

Earnings

The money you take out of your business is your earnings.  You cannot claim this as a business expense.  As a sole trader you will not be on a payroll and therefore your "wage" is not a cost of the business.

Professional fees

You can claim for the costs of using a professional such as a bookkeeper, payroll expert, accountant, HR support, solicitor, etc as long as the cost relates to the business.

You cannot claim as a business cost any fines you have received for breaking the law eg parking fines, speeding fines, etc.

Subscriptions

You can claim for subscriptions to a professional organisation or trade body related to your business.

You cannot claim for donations to charity (unless it is sponsorship when you receive advertising in return) 

You cannot claim for gym membership or other sport membership.

Training 

You can claim for any training course which is related to your business and  improves your skill or knowledge.

You cannot claim for a training course to enable you to set up a business or expand into new areas of business.

Summary

HMRC are very clear about what can and cannot be claimed as business expenses and whilst they may not see every transaction you put through your business if they decide to review your accounts they can go back a few years and may find things which shouldn't be there.

Every business owner wants to claim everything they are entitled to so it is important to review HMRC advice, and use a bookkeeper and/or an accountant to make sure you are claiming everything you are allowed to and nothing you aren't allowed to.