Sole Trader Expenses

As a sole trader, understanding expenses is vital for success. From basic costs to smart spending, every expense matters. In this blog, we'll identify the most common overheads to ensure nothing is missed out.

1. Office Expenses

Whether you work from a dedicated office space or from home, office expenses are a fundamental part of running your business. This category includes costs such as rent, utilities, internet and phone bills, office supplies, furniture, and equipment.

If you work from home, you can claim a portion of your household bills as business expenses, based on the proportion used for business purposes, or use simplified expenses up to a maximum of £26/month, depending on number of hours worked.

2. Marketing and Advertising

Promoting your business is essential for attracting clients and generating revenue. Marketing and advertising expenses may include website development and maintenance, social media advertising, business cards, brochures, flyers, and other promotional materials. Don't forget to budget for networking events, trade shows, and other marketing activities to help raise awareness of your brand and reach potential customers.

3. Professional Services

As a sole trader, you may need to engage the services of professionals to support your business operations. This could include fees for accountants, bookkeepers, lawyers, consultants, and other experts who provide specialized services. These professionals can help you manage your finances, navigate legal requirements, and optimize your business strategy, making them valuable partners in your entrepreneurial journey.

4. Travel and Transportation

Travel is an important part of many businesses; to meet clients, attend meetings, or deliver goods. This could include fuel costs, public transportation fares, vehicle maintenance, parking fees, and accommodation for overnight trips. Keep detailed records of your travel expenses, including receipts and mileage logs, to ensure accurate reporting and potential tax deductions.

It may be beneficial to use a flat rate mileage allowance (45p/mile) in the place of fuel, insurance, maintenance, and depreciation. The method of calculation can only be changed with a new vehicle.

5. Insurance and Licenses

Protecting your business with the right insurance policies is essential for mitigating risks and ensuring peace of mind. Consider investing in insurance coverage such as public liability insurance, professional indemnity insurance, and business equipment insurance to safeguard your business assets and liabilities. Additionally, don't forget to include any licenses or permits required to operate your business legally in England.

6. Training and Development

Investing in your skills and knowledge is crucial for staying competitive in your industry and growing your business. Training courses, workshops, seminars, and conferences to keep you up to date in your profession or industry are all relevant expenses. The caveat here is if you are learning a new skill, as this would not be an allowable expense.

Sole Trader or Limited Company

Starting a business involves making important decisions, such as choosing the right legal structure. Two common options are sole trader and limited company. But what's the difference, and which one is best for you? In this blog post, we'll break down the differences to help you make an informed choice.

Description

Sole Trader: It's just you running the show! As a sole trader, you are the business without any legal separation between you and your company.

Limited Company: A limited company is like giving your business its own identity. It becomes a separate legal entity, distinct from you as an individual, and requires official registration.

Liability

Sole Trader: You're personally responsible for everything. If your business gets into debt, your personal assets could be at risk.

Limited Company: Your personal assets are protected. The company is responsible for its debts, so your liability is limited to the money you've invested.

Taxation

Sole Trader: Think personal income tax. As a sole trader, your business profits are treated as personal income, and you'll pay tax accordingly. You'll also need to make National Insurance contributions.

Limited Company: Meet corporation tax. Limited companies pay tax on their profits through corporation tax. You then pay personal tax on the income received from the company, like salaries or dividends.

Reporting and Compliance

Sole Trader: Keeping it simple. As a sole trader, you'll have fewer administrative tasks. You'll need to keep records of your business transactions, complete an annual self-assessment tax return, and comply with any industry regulations that apply.

Limited Company: More paperwork, but manageable. Limited companies have more reporting obligations. You'll need to maintain detailed accounting records, file annual financial statements with Companies House, and meet legal requirements like holding meetings and keeping registers.

Perception and Credibility

Sole Trader: Personal touch. Being a sole trader can be seen as more informal, but it depends on your industry and circumstances. Some clients may appreciate the personal touch and flexibility.

Limited Company: Professional image. A limited company often conveys professionalism and stability, which can enhance your credibility when dealing with clients, suppliers, and lenders.

Conclusion

Deciding between a sole trader and a limited company is an important step for your business. Sole traders offer simplicity and control but come with unlimited personal liability. Limited companies provide legal separation, tax advantages, and improved credibility but involve more administrative responsibilities. Consider your goals, financial situation, and long-term aspirations. Seeking advice from an accountant or business advisor is always a smart move. They can guide you in choosing the best option for your specific needs and set you on the path to success.

Tax Rates 2023/24

Personal Tax allowance

The personal allowance is the amount earnt before income tax becomes due.

The personal allowance is £12,570 for those earning less that £100,000.

If you earn between £100,000 and £125,000, the allowance reduces by £1 for every £2 earnt above £100,000 until it reaches 0

If earnings are over £125,000, you will not have any personal allowance.

Income tax rates

This is the rate of tax on earnt income, which may include income from employment, self-employment, pensions and rental income.

Band	Income level	Tax Rate
Personal Allowance	£12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	Over £125,140	45%

Savings Allowances

The savings allowance allows you to earn interest on savings without paying tax. The amount of interest tax free depends on your income band level. Interest earnt over this will be taxed at your income tax rate.

Note savings in ISA's are exempt from tax and should not be included.

Income Band	Allowance
​Starting rate (income less than £17,570)	£5,000
Basic rate	£1,000
Higher rate	£500
Additional rate	£0

Student Loans

Plan	Threshold for repayment	Repayment rate
Plan 1	£22,015	9%
Plan 2	£27,295	9%
Postgraduate loan	£21,000	6%
Plan 4	£25,375	9%

Corporation tax rate

Corporation tax is the tax rate companies pay on all profits after allowances. This has increased this period for businesses with profits over £50,000.

Band	Limits	Tax rate
Small Profits Rate	Up to £50,000	19%
Marginal Releif	Between £50,000 and £250,000	Marginal relief at 3/200 (26.5%)
Main Rate	Over £250,000	25%

Dividend tax rates

There is a £2,000 tax free allowance for dividends, after which tax will be charged at the following rates depending on your income tax band.

Note dividends from a stocks and shares ISA are tax free and should not be included.

Tax Band	Tax rate
Basic rate	8.75%
Higher rate	33.75%
Additional rate	39.35%

Capital Gains tax

The Annual exempt amount is £6,000, after which tax is charged at the following rates depending on tax bracket. Note that the disposal of rental properties has a different rate to other gains.

Tax Bracket	Tax rate
Basic rate	10%
Higher rate	20%
Basic rate (Property)	18%
Higher rate (Property)	28%
Gains qualifying for entrepreneurs' releif	10%

Allowances

Marriage allowance - £1,260

Married Couples Allowance - £10,375

Blind person's allowance - £2,870

Pension contribution maximum allowance - £60,000

VAT

The threshold for VAT registration is £85,000 in any 12month period.