There’s a lot of guidance around to help you understand what expenses you can offset against your profits when you are self employed (including my blog on sole trader tax deductible expenses), but sometimes you also need to know what you can’t claim. Here are some of the usual suspects you need to avoid:
- Self employed National Insurance Contributions. Although you have to pay these because you are self employed, they are not a tax deductible expense. It helps if you view them as a tax – you can’t claim back your tax against your tax..!
- Childcare costs. Even if you have to pay for an extra childcare session in order to attend a vital business meeting or a conference, its not something you can claim. The only thing you could do is to set up a childcare voucher scheme as a limited company (something I’ll be blogging on another day!)
- Subsistence. This trips a lot of people up, and the rules are different if you are self employed or if you are a limited company director. As a sole trader you can only claim overnight subsistence costs if you have had to stay away – usually viewed as reasonable dinner and breakfast costs, not lunch or snacks or coffee breaks!
- Entertainment. Business entertainment is never an allowable expense.
- Penalties. So anything from tax penalties to speeding tickets to parking fines can’t go through your business books.
- Personal use. This is a bit of a general rule which says anything that you use that isn’t for business can’t be taken as a business expense. So for example your mobile phone bill – you need to figure out how much of the time you spend on business calls vs personal calls, and only the business part is tax deductible.
If you know you’ve claimed any of the above in previous tax returns then you might want to chat to an accountant – if its a big enough number then you ought to contact HM Revenue & Customs to see if it would have affected your tax bill!
Don’t forget, if you want to have a friendly accountant on tap to answer any questions on your specific circumstances then you might want to sign up for my Sole Trader Support Package.