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
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
clothing expenses for work purpose only (uniforms)
things you buy to sell on,
legal and accountancy cost
costs of your business premises,
advertising or marketing,
subsistence, reasonable amount for food & drinks
capital allowance on plant & machinery (equipment)
a percentage of home expenses if you work from home
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
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
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.