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As a sole trader, you can’t claim pension contributions as a deductible expense. However, you can get personal tax relief from contributions you make into your pension scheme.
If you’re a limited company director, you have the option of making pension contributions through your company. This will reduce your company’s profits, and as such reduce the amount of corporation tax your company pays.
Download our Ultimate Expenses Guide
Download our Ultimate Expenses Guide
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Claiming mobile phone expenses when self employed
"Can I claim my smartphone as an expense?" is a simple, but a common question for first-time contractors.
That's because HMRC's expenses rules can be confusing, and while you want to be sure that you're running your business as tax-efficiently as possible, it's just as important to be in the good books of HMRC.
We've put together a short guide so you can get a quick overview of the basics. If there are any areas you're unsure about, you may check in with our accountants at Forma so you can be sure that you're claiming your limited company expenses correctly.
Can I expense Phone calls?
As a sole trader:
If you're using your mobile phone line for both business and personal use, you can't claim for line rental. However, you can claim for call costs for business use if you obtain an itemised bill. If you have a separate mobile phone line for business use, you can claim the costs incurred.
As a limited company director:
1. Mobile phone: If your mobile phone contract is between your company and mobile phone provider, and is used for solely business purposes, you can claim the entire bill as an allowable expense.
If you have a personal contract, you can claim for the costs incurred for business calls. You're also able to reclaim the VAT element of the business calls.
2. Landline: If your landline contract is solely for business use, you can claim the cost as an allowable expense. You can also claim for business calls you've made using your home phone line.
Can I expense Training costs?
Professional development costs can be claimed as an allowable expense, as long as the course content directly relates to your trading activity.
Training courses that you attend to learn a new skill-which you can use to expand into a new industry or offer different services-aren't allowable, unless you can show that these courses are helping you build up on your existing skills or knowledge.
Can I claim expenses before my company was formed?
Yes. You can claim pre-trading expenses of up to seven years before the incorporation date of your limited company, as long as these expenses have been paid for with your own money and were incurred ‚Äòwholly, exclusively and necessarily' for setting up your business.
Examples of pre-trading expenses you can claim for include:
- Internet and domain name fees
- Purchase of computer equipment and software
- Accountancy and other professional fees
- Travel costs
To learn more about allowable business expenses, read our expenses and tax allowances guide for limited company directors.
Can I expense Social Media Ads or Marketing Costs?
Yes, you can claim the costs of social media ads as a deductible expense.
Can I expense my home office?
There are two methods you can use to work out your allowable home expenses: you can claim a flat rate allowance (also known as simplified expenses), or claim a proportion of your bills. For further information on these methods, refer to our expenses and allowances guide for limited company directors and the self-employed.
If you're a sole trader and aren't sure which method is the better option for your business, you can use Gov.uk's simplified expenses checker tool.
Can I expense Optical expenses?
You can claim an eye test as an allowable expense, if it is required for the use of visual display equipment in your work.
In general, you can't claim for glasses or contact lenses unless these items are 'wholly and exclusively used for business purposes', and you're able to prove that you don't use them outside of your working houses. One example would be that you have several pairs of glasses, one of which is used only when you're at work.
What is a use of home allowance?
As a self-employed person, there are two ways to calculating the allowance you can claim for working from home. You can claim a fixed rate of £6 per week, or a proportion of household costs used by the business. Further information is available on our resource on the use of home allowance.
Can I expense Utilities?
If you're renting an office, you can claim utilities as a deductible expense.
If you're using your home as an office, you'll need to work out the proportion of your utilities that you can allocate to business use in order to claim these costs as a deductible expense.
How do I make pension contributions through a Limited Company?
As a limited company director, you can make pension contributions as an individual (as an employee), as well as through your company (as an employer).
Most directors make pension contributions from their company. This is a tax efficient approach, as employer pension contributions are an allowable business expense, which means that your company doesn't need to pay corporation tax on pension contributions made.
You won't need to pay tax on your contributions, as long as it falls below your annual allowance (capped at £40,000 for 2020/21), and your pension benefits doesn't exceed the lifetime allowance (£1,073,100 for 2020/21).
Can I expense Software?
You can claim the costs of purchasing computer software that your business uses for less than two years. You can also claim for computer software that you use for more than two years, if your company makes payments regularly to renew the license.
Can I expense Parking?
You can claim parking costs as a deductible expense, as long as it is incurred wholly and exclusively for business purposes. Other allowable business travel expenses include tolls and congestion charges. You can't claim parking fines as a deductible expense.