If you are a sole trader or self-employed, you must pay income tax. However, you can reduce the amount of tax you pay by claiming allowable business expenses.

Individuals have a personal tax allowance of £12,570. Money earned over this is taxable income and you will need to register for a self-assessment tax return.

The basic tax band is 20% of your income when you earn between £12,571 and £50,270. The higher 40% tax bracket is for those earning between £50,271 and £125,140. Those earning above £125,140 are required to pay 45%.

UK Trading Allowance

In addition to the personal tax allowance, if you are self-employed, you can earn up to £1000 yearly without paying income tax. It applies to your total gross trading income.

Self-employed Tax Benefits

If you work from home, you can claim for the costs for your study/work area. This includes utilities, broadband and phone costs, stationery, office equipment and software. You are only allowed to claim on necessary business costs – personal usage is not included.

If you work in a commercial office, you can claim on these costs in addition to rent, mortgage expenses, or hot-desking fees.

For jobs that require you to drive, such as deliveries or home services, you can have a mileage allowance. Mileage rates depend on the vehicle you are driving. Cars and vans receive 55p per mile for the first 10,000 miles and 25p for additional miles. You can also claim on other transport costs such as insurance, repairs, servicing, parking and more.

If your job needs you to wear protective clothing or a branded uniform, you can claim these costs against your profit.

Further business expenses such as training costs or outsourcing fees for marketing, advertising, PR and accountancy can also be claimed. 

At J Sweeney Accountants, our expert team can help sole traders manage their finances and receive the best possible tax benefits. For more information, call 01604 950034 or email [email protected].