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Small business guide - allowable expenses for sole traders and partnerships

Running a small business can be rewarding but managing expenses effectively is critical for maintaining financial health and correct tax liabilities. As a sole trader or partner in a business partnership, understanding what counts as an allowable expense can make a significant difference when filing your Self-Assessment tax return.

Here is a small guide to help you navigate allowable expenses, ensuring you only claim what you’re entitled to while staying compliant with HMRC regulations.

What are allowable expenses?

Allowable expenses are business costs that you can deduct from your income before calculating your taxable profit. To qualify, these expenses must be wholly and exclusively for business purposes. If an expense is partly for personal use, you can only claim the business portion.

Key tips for claiming allowable expenses
  • Maintain accurate records: Keep receipts, invoices, and bank statements for at least six years to support your claims.
  • Separate business and personal finances: Use a dedicated business account to make tracking expenses easier.

Allowable expenses explained for small businesses
  1. Office costs
    • Home office: If you work from home, you can claim a proportion of your household bills such as electricity, heating, and internet costs. Alternatively, HMRC provides a simplified flat rate option or you can calculate the exact proportion based on usage. The rates are:
      • £10 per month (25-50 hours per month).
      • £18 per month (51-100 hours per month).
      • £26 per month (101+ hours per month).

    • Office supplies: Items like stationery, printing costs, and business software are fully deductible.

  1. Travel and vehicle expenses
    • Business travel: Train fares, bus tickets, taxis, and mileage for business trips are allowable. Keep records and receipts to substantiate your claims.
    • Vehicle costs: If you use your car for work, you can either claim:
      • A fixed mileage rate (45p per mile for the first 10,000 miles, 25p per mile thereafter).
      • A proportion of your total vehicle expenses, such as fuel, insurance, and maintenance costs.

  2. Marketing and advertising
    • Costs for promoting your business, such as building a website, digital ads, and print materials, are deductible.
    • Networking event fees and professional memberships (e.g., trade bodies) also fall under this category.

  3. Professional fees and bank cost
    • Fees for accountants, solicitors, and other professionals that help you run your business are allowable.
    • Bank charges on business accounts and interest on business loans are also deductible.

  4. Stock and materials
    • The cost of goods bought for resale or raw materials used in production is deductible. Don’t forget to account for wastage or stock write-offs.

  5. Premises costs
    • If you rent or lease a business property, you can claim the rental costs. Utility bills, maintenance, and repairs are also allowable.
    • Business rates paid to your local council qualify as well.

  6. Employee costs
    • Salaries, pensions, and employer’s National Insurance contributions are allowable expenses.
    • Training costs for your employees or yourself, if directly related to your business activities, can be claimed.

  7. Insurance
    • Business insurance policies, such as public liability insurance, professional indemnity insurance, and employer’s liability insurance, are allowable.

  8. Subscriptions and licences
    • Subscriptions to trade journals and professional bodies relevant to your industry are deductible.
    • Licences required to operate your business, such as software licences, are also allowable.

What cannot be claimed?

Certain expenses are specifically disallowed, such as:

  • Personal expenses (e.g., holidays, personal clothing).
  • Client entertainment costs not directly related to business operations.
  • Fines and penalties.

Need help? Get in touch today

E-mail us at enquiries@mylocalaccounting.co.uk or call us on 0116 298 2425