As a sole trader, you are going to naturally incur running costs whilst operating your business. The good news is that Ember is here to support you every step of the way, with our handy guide detailing the main expenses you can claim back:
In order to maximise your tax efficiency, it 's important to claim all of the expenditure that qualifies, as this will help reduce your profits that are subject to Income Tax (remember to always keep accurate records and hold on to a digital version for at least six years). For more information about how self employed individuals are taxed, please visit our guide here.
The general rule for claiming expenditure requires you to ask yourself whether the costs incurred are "wholly and exclusively" related to your trade. If the answer is yes then these can normally be deducted as an expense. When there are both personal and business elements to the expense, you can apportion the costs to only claim the business element.
The costs that you identify as business related will go against your income when you come to file your self assessment return at the end of the year. The amount you claim will directly impact your Tax and National Insurance bill. You will be able to see the impact of expenses on your estimated tax by checking out the Personal Tax Report before and after entering your expenses.
Accommodation used when travelling
You may find yourself having to travel as part of your sole trade business. Any accommodation related expenses can be claimed as an expense in full assuming this is reasonable and not excessive. This does not include staying in your own home (more on this further down).
Please categorise as Travel in Ember.
You will be able to claim a deduction for the monthly cost of using the Ember software platform. Those on the free plan, will be able to claim for the annual cost of your self assessment return. You can also claim for any other accountancy fees you incur, as long as the time is being spent working on your sole trader accounts and not on personal items.
Please categorise the service related costs as Legal & Professional Fees and any software costs as Software.
If you use your personal vehicle for business travel to a temporary work location you can claim mileage at the following rates:
Rate for first 10,000 miles
Rate for each mile over 10,000 miles
Cars & Vans
Ensure you keep a log of the miles travelled for proof. There are many mobile apps you can use to help automate this process.
Unfortunately you can't claim for the miles you ride on your personal bicycle however, you may be able to purchase one as a sole trader and claim the cost/future maintenance.
In order to claim business mileage you can add a manual expense into Ember for either the monthly claim or for the entire tax year. See our guide here on how to add manual sales and expenses.
Please categorise as Travel in Ember.
You will not be able to get a deduction from your sole trade profits for making charitable donations.
Please use the Donations category when reconciling any transactions in Ember, as it won't go in as a sole trader business deduction.
Instead you should keep a record of these donations separately and provide them to us when we complete your self assessment. The reason for this is because any personal gift aid donations will increase your tax bands by the gross amount of the donation. This will lead to a reduction in income tax if you are a higher rate tax payer.
You can include claims for the cost of uniform, necessary protective clothing, or costumes for actors or entertainers. You can not include the cost of everyday clothing that you wear to work.
Please categorise as Other Costs in Ember
Eyesight tests and glasses
You can claim for an eye test once a year if it's necessary as part of your duties to use visual equipment. You can only claim the cost of glasses if they are prescribed for your use during time at work.
Please categorise as Other Costs in Ember.
Fixed assets are larger purchases that you intend to use in the business for more than a year. Examples could be anything from a desk to a computer.
You may also claim for the cost of equipping and furnishing a business office. Please note this needs to be deemed reasonable and not excessive to qualify as a sole trade asset.
You won't receive a deduction from your sole trade profits, but your accountants at Ember will help you claim for capital allowances when completing your annual self assessment. Most assets will qualify for 100% relief due to the annual investment allowance and will therefore have the same full tax relief as a normal business expense.
Please categorise as Asset Purchases.
If you purchase a vehicle for your sole trade business (not a personal vehicle you use for business occasionally - see Mileage), then please categorise this as Vehicles.
The tax rules for claiming capital allowances for these types of assets are more complicated. Please speak to an Ember accountant if you are planning on purchasing a vehicle and are keen to understand the tax implications.
You can include the cost of business insurance, for example:
Public liability insurance
Professional indemnity insurance
Employers' liability insurance
Unfortunately for sole traders, health and medical insurance costs can rarely be claimed as a business expense.
Please categorise in Ember as Insurance.
Marketing & PR
You can claim for the cost of marketing your business – including newspaper advertising, SEM, paid digital advertising, directory listings, mail-shots, free samples, public relations fees and website costs.
Please categorise in Ember as Marketing & PR.
Sole traders will not be able to get a deduction from their business profits for making pension contributions.
If you have these transactions in Ember, you can categorise them as Pension Contributions. They will then not be included in your profit/loss.
Instead you should keep a record of these costs and provide them to us when we complete your self assessment. This is because any pension contributions will increase your tax bands by the gross amount of the contribution. This will lead to a reduction in income tax if you are a higher rate tax payer.
Phone & Internet
If you are using a mobile phone for both business and personal calls you cannot claim for the full line rental cost. This is due to the fact the expense is not wholly and exclusively related to your sole trade business.
You can instead claim an apportioned cost based on your deemed business use. So if you use your phone 40% of the time for the business, you can claim 40% of the line rental cost.
It's often easier to have a separate phone that you use purely for your business and therefore you can claim the full cost. The same approach is taken when determining the allowable expenses associated with Broadband.
Please categorise in Ember as Phone & Internet.
You can include the cost of membership to trade bodies or professional organisations if they’re relevant to your business, and the cost of subscriptions to trade or professional journals.
Please categorise in Ember as Other Costs.
Renting your home and use of your home as an office
If its necessary for you to work at home as part of your sole trade business you are entitled to claim for your allowable home expenses against your profit.
You have two options when claiming:
Simplified expenses - This uses a flat rate based on the number of hours you work from home each month. Note, it doesn't include telephone or internet expenses (you can claim for these separately).
Hours of business use per month
Flat rate per month
25 to 50
51 to 100
101 and more
Calculate a proportion of the costs that relate to your business - This is the more complicated option but is in most cases more tax effective.
To claim more than the £312 a year (£26 as above * 12 months), you will need to set up a rental agreement between you and your business.
We recommend using our calculator to give you an idea of the cost to the business that you can then potentially charge your business. Please message your Ember accountant if you want a calculation spreadsheet (note this is only available to users on the Pro plan). Please fill in the green sections and send back to us to review for reasonableness.
If the amount is significantly more than the £312, then you may want to consider setting up a rental agreement. However just a few things to consider:
If you charge the same as the deemed cost to the business from the calculator, then no income tax would be due on the rental income received as income would be equivalent to cost.
If you want to charge a market rent, this needs to be realistic in terms of commercial value and deemed to be at arms length. However income tax would likely be due as you would then need to declare the rental income received above the cost to the business.
A formal rental agreement must be in place.
You should consider regular reviews of the calculation from the spreadsheet figures used and the rent charged.
There could be capital gains implications on the sale of your personal home. However, this impact is normally negligible.
If you did want to proceed with charging your business rent in this way:
We would need to agree the calculation was reasonable.
We would need a copy of your rental agreement.
You could then start paying yourself from your business the amount per the contract and record the transaction as rent in Ember.
Most individuals opt for the first option, purely out of simplicity.
You can claim business expenses for items that you’d usually use for less than two years. This includes business stationery and a list of the following examples:
Phone, mobile, fax and internet bills
Printer ink and cartridges
Please categorise in Ember as Office costs.
You can claim business related software costs against your sole trader profits.
Project management tools
Development operations software
Accounting and legal software
Computer software your business uses for less than two years
Computer software subscriptions if your business makes regular payments to renew the licence (even if you use it for more than two years)
The list goes on!
This will need to be necessary for the operating of your company with only negligible personal use to be allowable. For example, you'd struggle to claim your Netflix subscription as a business software expense!
Please categorise as Software.
Employee and staff salaries count as allowable expenses, alongside a list of the following:
Employer National Insurance contributions
Training courses related to your business
Please categorise under the relevant category – Staff Salaries, Staff Pension, Staff Taxes.
Stock and materials
You can include the cost of your stock, your raw materials, and the direct costs that arise from producing your goods/providing your services.
Please categorise under Stock.
The cost of work-related training on specific courses is allowable ONLY if it directly relates to and benefits the trade being carried out by your business.
Courses to enhance your existing knowledge in relation to your trade are therefore allowable. However, courses used to train you for a new skill to enable you to branch out into new sectors or offer a new service will not be allowable. Undergraduate degrees and Masters are therefore not allowable as a deduction from your taxable profits.
In order for the training to be deductible it's really important you can demonstrate that it is directly related to the income which is currently being generated by your business.
Please categorise under Training.
If the expense does not meet the rules above as a deductible expense, please categorise as Drawings.
You can claim for travel expenses as long as the travel is wholly and exclusively for business purposes and this is not part of your regular commute to a base of operations.
If you are using your personal vehicle for business travel please see our section on mileage.
Expenses relating to airfares, train tickets can also be deducted under travel as long as the travel is not related to a personal trip. Other items you can claim for include tolls and congestion charges, but be careful where you are parking as parking fines are now allowable as a business expense.
Finally, you can also claim for the cost of accommodation when travelling. HMRC will accept that extra allowable costs for food and drink may be incurred where the nature of your business is itinerant (in other words... sole traders who have no specific base of operations and have work locations that vary from job to job).
Make sure to seek advice from an Ember accountant if you are unsure whether your expenses can qualify as a deduction from your business profits.
Please categorise related transactions as Travel.