Allowed and Disallowed Expenses for Sole Trader

"What can I deduct from my profit and what can't I?"

"Why is the accountant's taxable income higher than what I calculate myself?"

Are the above questions familiar to you?

When it comes to their taxable income many entrepreneurs still have doubts about what expenses are allowable and which ones are not. 

In this article I'll focus on sole traders and provide some insights on expenses which are allowable and not allowable in the calculation of taxable income for your business.

This will hopefully clear all doubts and help you alight your own taxable income calculation with the proper way an accountant would do. 

Allowable expenses for Sole Trader / Self Employed - expenses which are only incurred for business purpose only

  • staff cost

  • Employers NIC

  • impairment losses

  • patent royalties payables

  • premium paid on grant short lease - rent in advance element

  • hire a high CO2 car > 130g/km, only 85% of the hire cost is allowable

  • pre-trading expenses (before the first sale) within 7 years of the business commencing 

  • some expenses must be restricted to the business use only, if the expenses are for personal + business use, then only a % is allowed to be deducted from the business income

  • entertainment of staff

  • capital allowance for assets related to business use    

  • cost to renew a short lease

  • local charity donation 

  • office costs,

  • travel costs, 

  • clothing expenses for work purpose only (uniforms)

  • things you buy to sell on, 

  • financial costs, 

  • legal and accountancy cost

  • costs of your business premises, 

  • advertising or marketing,

  • subsistence, reasonable amount for food & drinks 

  • capital allowance on plant & machinery (equipment) 

  • training

  • office rent

  • a percentage of home expenses if you work from home

  • insurance

  • general maintenance of assets

  • expenses related to car usage

  • accommodation if travel for business

Disallowable expenses for Sole Trader / Self Employed - expenses which are NOT only for trade purpose

  • entertainment of customers and suppliers

  • capital expenditure

  • legal cost of acquiring capital assets

  • cost to acquire a short lease

  • interest payable on loan for personal use

  • loan to customers and suppliers

  • hire a high CO2 car > 130g/km, only 15% of the hire cost is dis-allowable

  • non local charitable donation

  • expenses for private use

  • your own salary, drawings or personal expenses

  • donations

  • the initial cost of building

  • travel between home and work place

  • legal fees if you break the law 

  • cost of clothes which could be worn for non-work purposes

  • depreciation of assets

  • lease capital premium 

If you follow the above points religiously, you are almost always guaranteed to get some results as an accountant.

I hope you found this tip helpful.

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