As a self-employed sole trader, getting the most tax breaks possible will undoubtedly be one of your top priorities. All one-man gangs pay taxes on their hard-earned winnings. As a self-employed person, you don’t want to pay more taxes than necessary. In this guide, we will help you make sure that you, the retailer, are paying the correct amount of tax, but not a penny more!
Regardless of whether you have been self-employed for 12 months or 12 years, all sole proprietorships are entitled to allowances and expenses in connection with their activity. If you’re a sole trader interested in tax savings, read on as we highlight the top business expenses you can claim with HM Revenue and Customs (HMRC).
What Is Tax Relief?
Tax breaks or tax relief can be used to offset your taxable earnings by filing a self-assessment tax return with HMRC. As a self-employed sole proprietor, there are tax breaks for the self-employed that you should consider. When claiming business expenses. Costs directly related to running your business – You can recoup more of your hard-earned income and pay slightly less income tax.
It is even possible to claim the VAT paid on goods and services for your business on your quarterly VAT return, as long as it is recorded for VAT purposes.
Would you like to know what expenses are tax-deductible as a sole proprietorship? Read on as we reveal the top operating costs for your business that are eligible for tax breaks.
What is Tax-Deductible as a Sole Trader?
First of all, you can apply for a tax refund on uniforms that will be used directly for your business. There is an HMRC laundry allowance which can be found on the GOV.uk website.
Simply put, if your clothing could be added to an “everyday wardrobe” and it is not intended solely for business use, a workwear tax refund is not allowed. They don’t just cover branded uniforms for your company. It can include the cost of protective clothing for dealers, while artists can even claim a tax break on stage clothing.
Travel Expenses and Engine Operation
Claiming travel expenses is another legitimate concession in the eyes of HMRC, but there are some aspects of your mileage and travel that you, as an individual dealer, need to consider.
In most cases, sole proprietorships do not have a vehicle that is solely for business use. While you can use your vehicle to travel and meet customers, it will likely be used for other purposes too.
For this reason, permitted operating expenses for vehicles are only permitted for the business elements of fuel, parking, repairs, service, puncture protection, and insurance. It is crucial that you do not cover travel between home and work, speed or parking tickets, and non-commercial travel expenses.
If you do not want to claim the actual costs of buying and operating a vehicle in your company, you can use the simplified method of commercial mileage accounting. You can claim 45p per mile for the first 10,000 business miles. Anything beyond that is claimed at a rate of 25 pence per mile.
You can also claim business expenses for other work-related travel expenses, such as train, plane, or taxi trips for business purposes, hotel rooms, after a branch seminar or a conference, and meals for business trips with overnight stays.
Buy or Rent Vans and Cars
Spending on autonomous cars is an important topic of conversation for any individual dealer. You may be wondering if you can claim the cost of buying a car or truck for use only at work. When you purchase a car or truck through your business, one type of plant and machine is listed as your business asset. This allows you to claim capital deductions on the value of your purchase, reducing your taxable profit.
If you choose to lease a car instead of buying one for your own business, there are three leasing options to choose from:
- Contract purchase
- Finance leasing
- Operating leasing
Each of these methods has its own rules for how to use them on your accounts, so it pays to speak to your accounting department before committing to any of the above so that you can understand which is best for you and your business suitable is.
Tools and Other Devices
If you’re a self-employed builder, mechanic, or other sole proprietorship who relies on tools or machinery to do their job, you can claim back taxes on the replacement and maintenance of your essential equipment.
You also have the right to seek compensation the first time you purchase the item, and this is done through a capital allocation or an allocation expense, it just depends on the basis you are using.
Home Spending
If you work from home as a sole proprietorship, you should be able to claim a portion of your household bills even when you are less busy. Your eligibility should be based on the total bills for your home, the area you used, and the time you spent doing business.
So that the rooms you use are only used for business purposes at this time, children can easily have their homework done in your office after work. This is to prevent that the room is treated as a business premise for qualification purposes and that you do not pay capital gains tax when you sell your house.
What Constitutes A Tax-Deductible Household Expense?
If you work from home, you can claim many self-assessment costs, including:
Mortgage interest (not the primary repayment aspect of your mortgage)
- Rent
- municipal taxes
- Water
- electricity
- Heater
- Real estate repairs
- Cleaning costs
To determine the proportion of household expenses that you can claim for each of the above costs, you must determine how many rooms you use at home for work and how long you use them for work.
For example, let’s say your property has five rooms and you use one of them Monday through Friday for business and on weekends for private use. You would start by calculating one-fifth of your mortgage interest, rent, city taxes, utility bills, etc., then divide by seven days a week and five business days. This will adjust your claim so that it only reflects the commercial use of this space.
HMRC’s Simplified Expenses Calculator
If you choose to operate as a sole proprietorship rather than a limited partnership, HMRC allows you to use the simplified cost calculator for part of your business costs.
With this calculator, sole proprietorships and professional associations can calculate their operating expenses on a flat-rate basis instead of calculating business-specific costs. Fixed rates can be used to cover:
- Commercial vehicle costs
- Cost of working from home
- Cost of living in your business premises
The tool is by no means a detailed method of measuring business expenses. However, it can help you figure out which way of calculating your business expenses will save you the most money.