Splitting Personal and Business Costs: A Practical Guide

Many of a sole trader's costs are partly personal and partly for the business. Your mobile phone, your car, the room you work in at home. HMRC lets you claim the business share, as long as you can show how you worked it out. Under MTD it helps to do that split as you record each cost, not at year-end.

The basic test

A cost is allowable if it's incurred wholly and exclusively for the business. Where there's a personal element, you claim only the business part. If you can't separate the two in a fair way, you may not be able to claim that cost at all.

Common mixed-use costs

• Mobile phone and broadband — claim the proportion used for work.
• Car or van — claim business mileage, or the business share of running costs.
• Working from home — claim a share of household costs, or use a flat rate.
• Software and subscriptions — claim the business part if you also use them personally.

Ways to work out the split

Pick a method you can explain and apply it consistently:

• Usage: look at a sample month of calls or data and apply that percentage.
• Time: for home working, hours worked at home compared with the time the rooms are used otherwise.
• Mileage: log business journeys and claim by mileage — 45p per mile for the first 10,000 miles and 25p after that for cars and vans, if you use simplified expenses.
• Floor area: for premises, the share of the property used for the business.

Record the split at the time

The easiest approach is to split the cost when you record it. With AppyTax, personal and business costs are separated as they are categorised, so your quarterly figures only include the business share. Keep a note of how you calculated the percentage in case HMRC asks.

Costs you can't split

Some things are purely personal and shouldn't be claimed at all, such as everyday clothing and your commute. If you're unsure, record the cost and ask before including it in a quarterly update. Subscribe and your first quarter's costs can be sorted from the start.