Sole Trader – Which expenses to claim?

You have started your business as a sole-trader, but you not sure what you are allowed to claim as expenses. For example, you see others ask for receipts for their lunch, so you think “I must do the same as it must be a business expense”. Unfortunately HMRC will say to you – I consider it a receipt under the “you need to eat to live” category, so it is not allowed to be included as a business expense on your tax return.

“But my friend’s accountant allows them to claim food”. My reply, as an Accountant would be “if your friend is a Ltd company, they may be allowed to claim food, as the tax rules are different than for a sole trader”.

But also, when clients do their own accounts, an Accountant may take the figures (all of them), and put included them in the accounts given to the client to sign and so they can see how their business is doing in relation to what is recorded in the accounts. What clients do not know is this is not what should go onto their tax return.

In simple terms, we take the business figures and add back expenses which are not allowable for tax purposes. This produces a new figure without some of the expenses in the accounts and this amount which is treated as taxable income.

You are trading, so should you include everything you can in your accounts, or just the real business expenses?

Personally, I prefer the real business expenses. It provides a truer picture of your business! It also reduces the time you, your bookkeeper and your accountant “waste” on providing good accounting records for you and also so you can complete your tax return correctly.

We also should not forget that claiming an false expense is FRAUD. Why should anyone think including fraudulent expenses is appropriate? Especially when the legitimate expenses are missed, omitted or forgotten!

I would suggest to a small business owner if you had to spend that money to run your business and because you need to for your customer then you must put that receipt through your business. If you spent it and thought afterwards, I wonder if I could claim that expense that I just paid for, then unless you have a compelling reason for claiming it, its not worth claiming.