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How to claim business expenses as a limited company or sole trader
There’s a lot to think about when you’re self-employed: managing your workload, balancing the books, looking for new work. Understanding which business expenses you claim as a sole trader or a limited company, though, needn’t be on that list.
Given the array of goods and services that are available to claim as a business expense, the process can feel a little daunting. How do you know you’re claiming the right ones? Are you claiming them correctly, and are you missing out on any that could’ve saved you some money on your next tax bill?
Well, the process is actually much simpler than you might imagine. With a little bit of guidance, you can be claiming your business expenses with confidence and assurance. With that mind, let’s take a look at how to claim business expenses, whether you’re a sole trader or a limited company.
What kind of things can you claim as a business expense?
Before we get to the “how”, let’s talk about the “what”. Knowing what constitutes an allowable business expense is the first step toward mastering this potentially fiddly job.
The complete list of what you can and can’t claim as an allowable business expense is pretty long and detailed, as you might expect from anything to do with HMRC! But there’s an easy rule of thumb to keep in mind: can you prove that the purchase in question was made “wholly and exclusively” for business use?
If you’re an electrician, you might need to purchase certain tools and equipment, like electrical tape or wire strippers. These would both be considered allowable business expenses in the eyes of HMRC, as they were purchased solely for business purposes. If you decide to buy a new washing machine, however, you’d have a hard time proving it was purely for the benefit of your business.
Other examples of the kind of purchases you could be claiming include, but aren’t limited to:
- Travel costs (i.e. train tickets)
- Business mileage
- Telephone and broadband costs
- Computers and laptops
- Office equipment (if you work from home)
- Charitable donations.
For a complete rundown of what you can claim as an allowable business expense, check out our two comprehensive guides on the subject: one for limited companies, and one for sole traders.
How to claim expenses as a limited company
If you’re running a limited company, you can deduct any business costs from your profits before tax, and you’ll need to report any item you make personal use of as a company benefit.
You can either pay for your company’s expenses directly from the company business bank account or as a ‘reimbursed expense’ if you pay for it personally. It’s important to remember to keep an accurate record any time you reimburse yourself from the company funds.
If you run a small business, your employees can also claim expenses, so it’s good practice to have a company expense form,established policies (i.e. how much employees are allowed to spend and in what situations), and to collect and file all the expense claims at the end of each month to stay organised.
It’s also important to stress that your employees must keep all receipts to be able to reclaim any expenditures.
Keeping track of your expenses such as business mileage is essential, as without the breakdown of journeys and mileage covered, HMRC could refuse your claim.
We recommend recording all business mileage on a spreadsheet and keeping it up-to-date throughout the year. You can download our Crunch Business Mileage spreadsheet to help you keep track of your mileage expenses.
For other business expenses, the cost of anything that’s necessary for running your business will receive tax relief – the trick is to make sure you meticulously record everything so you don’t lose out.
If you’re not using online accounting software like Crunch, the best way to keep track of what you’ve spent on supplies and other expenses is a simple spreadsheet. The main difference is you don’t have to record each item separately – for example, if you have bought 10 packs of 100 pens at £3 each, you can record it as 1000 pens for £30. It is, however, important to keep the receipts for every purchase you make on behalf of your business. Receipts must be kept for at least five years after the 31st January submission deadline for your Self Assessment. We usually recommend keeping receipts for a period of six years, just to be on the safe side.
You can store receipts in a number of ways, and it’s best practice to keep the paper copies somewhere safe, as well as backing them up digitally – with a picture on your phone for example (receipts tend to fade, but digital backups will remain pristine forever). You can manually scan them or use a mobile app like our ‘Snap’ app to record the details.
How to claim expenses as a sole trader
Sole traders claim their expenses a little differently; they can claim their expenses when they file their annual Self Assessment; this is typically filed at the beginning of each calendar year (the deadline is 31st January after the end of each tax year for online filing), although you can file your Self Assessment any time from the end of each tax year on 5th April.
For more information on how to claim sole trader expenses, and which expenses you can claim, don’t forget to download our free guide.
Your accountant can help, too!
When in doubt, ask your accountant! When it comes to your business’ finances, there’s no such thing as a stupid question, so if you’re unsure whether you can claim a certain product or service as a business expense, ask your accountant for some guidance.
If you’re without an accountant, or you’re with one who’ll nickel and dime you for every call and question, don’t forget to check out the accountancy packages we offer for limited companies and sole traders alike. Our paid packages include a team of expert accountants and client managers that are available whenever you need them to answer your questions – and you’ll never be asked to pay extra to speak to them.
You might also be interested in Crunch Free, our free online bookkeeping software available to access right now! Crunch Free is perfect for those businesses that are just starting out, who manage their own tax filings, or those who already have an accountant and need a secure system to record their expenses and send their invoices.
Head on over to our website and discover how Crunch can you help simplify self-employment today!