What expenses can’t I claim as a Sole Trader?

As a sole trader, keeping track of your business expenses is crucial for managing your finances and minimising your tax liability. However, not all expenses are eligible for tax deductions. Understanding the difference between allowable and disallowable expenses can help you avoid mistakes and ensure that you remain compliant with tax regulations. In this blog, we’ll dive into disallowable expenses—those costs that cannot be deducted from your taxable income.

Let’s look at some examples!

Expenses that are personal in nature cannot be claimed as business expenses. Everyday clothes or personal items, even if worn for business meetings, are not allowable. The only exception is for specialised uniforms or protective clothing needed for your work.

Entertaining clients or business associates is a common aspect of business life, but unfortunately, these costs are not deductible. HMRC disallows expenses related to business entertainment, even if you are treating a client to dinner or taking them out to a corporate event to secure new business. For example, meals with clients, tickets and hospitality costs.

Exercise is a proven way to improve your mood and boost your energy levels. But regardless of the mental, physical and business benefits of regularly going to the gym, membership fees are a disallowable expense. If you want to become a member of your local gym, you will have to spend your own money!

Any fines or penalties that you incur, whether for business or personal reasons, cannot be claimed as a business expense. These include late filing penalties from HMRC or parking fines, which are not classed as allowable expenses.

While you can deduct the interest on business loans or finance charges related to business borrowing, the original loan amount is not deductible. The repayment is viewed as a capital expense, not a trading expense.

If a car is used for both business and personal use, only the business portion of the costs (fuel, insurance, repairs) can be deducted. You will need to keep accurate records of business mileage to calculate the allowable percentage. This also includes commuting to and from your home and regular place of work which can be considered private use.

Appearance may be important at work but unfortunately, you cannot claim allowable expenses for visits to the barbers, hair or beauty salon. You also cannot claim for office wear or everyday clothing, even if you wear it for work.

However, branded workwear, such as a polo short bearing your business name and logo, can be claimed as an allowable expense, because it’s marketing your business and you’re not likely to wear it outside of work hours. Safety clothes and footwear is allowable.

Training expenses

Training that is not directly related to improving your current business skills or knowledge is not allowable, nor is any training that is considered personal development or not directly relevant to your existing business.

If the training directly enhances your existing business skills or helps you keep up with industry developments, it may be allowable. It is important to keep clear documentation to show that the course is business-related.

A word from Future Cloud

As a sole trader, being aware of disallowable expenses can save you from making costly mistakes. Ensure that you are only claiming legitimate tax deductions. It is important to record every expense and keep receipts or digital records to back up your claims. You may also want to consider having a separate bank account for your business transactions. This will make it easier to track business spending and avoid claiming disallowable personal expenses.

If you are unsure whether a particular expense is allowable, get in touch today. Email info@future-cloud.co.uk or by call us on 01636 337069! We look forward to hearing from you and helping your business.