This is without doubt one of the most common questions I am asked by my sole trader and partnership clients. To keep it really simple, ask yourself this question; “is the expense ‘wholly, exclusively and necessary’ for the business?” 

Following are two common areas I often get asked about. 

Vehicle and travel expenses 

In the majority of cases that I see, personal cars are not solely used for business purposes, therefore HMRC allow people to claim a mileage rate to reimburse the driver for the cost of fuel, as well as covering the general wear and tear on their vehicle. This mileage rate is currently 45p per mile for the first 10,000 miles and 25p per mile thereafter. Individuals should keep detailed logs as to the number of miles they drive so that they can work out what tax deductible expense can be claimed. A quick search on an online route finder will quickly give you the distance travelled. 

If you claim the mileage rate, you cannot then claim for servicing, MOTs, repairs, fuel receipts etc. If you do claim for these types of expenses and not the mileage rate, HMRC can seek to deny you tax relief on these expenses as it is difficult to determine how much of that expense was attributable to your business use – hence the mileage rate. It is very different for those vehicles which are used solely for business purposes. You may own a van for instance which is used for your business, and have a personal car for non-business use. In this instance you would be allowed to claim for items such as MOTs and servicing etc. 

Home office 

You may also work from home, where some expenses can be claimed to cover the cost of running a household. HMRC allow simplified rates based on the number of hours you work from home: 

Between 25-50 hours per month is £120 per year 

Between 51-100 hours per month is £216 per year 

101+ hours per month, is £312 per year 

The above doesn’t include telephone or internet expenses, so you need to calculate a proportion of business use and add to these figures. Alternatively, you can perform a calculation based on your household bills (gas, electricity etc.), the time spent working at home, the size of your property and from that arrive at a figure which may well be higher than the simplified rate offered by HMRC. However, it is important to know what types of bills can be included, how to measure the size of the property and how to calculate the time spent, to arrive at an accurate figure which is tax deductible.