Wages and salaries: what you can claim

This category is for the people you employ — their gross pay before deductions, plus overtime, bonuses and agency cover. One rule towers over everything else: as a sole trader, you cannot put yourself on the payroll, however tempting the paperwork looks.

What you can claim

• Gross wages and salaries — the full amount before PAYE deductions are taken.
• Overtime, bonuses and commission — paid to staff for their work.
• Statutory payments — sick pay, maternity pay and the like that you fund as an employer.
• Agency and temporary staff fees — cover when you are short-handed.
• Job-related training for your employees — courses they need to do their role.
• Uniforms and protective clothing for staff — hi-vis, steel toe caps, branded workwear.
• The annual staff party — allowable up to £150 a head each year.

What you can't claim

• Your own pay or drawings — you are not an employee of yourself, so nothing you take out is a wage.
• Wages for family members who do no real work — a salary for a spouse who never lifts a finger will be challenged.
• Net pay only — always record the gross figure, with employer National Insurance in its own category.
• Cash paid to helpers with no record — no hours, no note, no claim.
• Your own income tax and National Insurance — personal taxes are never a business cost.

Common mistakes

Recording net pay instead of gross is the most frequent slip. If an employee's gross pay is £2,000 and their take-home is £1,650, the business cost is £2,000 — the £350 you send to HMRC is their money, deducted at source. Claiming net pay understates your expenses and inflates your profit.

The opposite mistake is worse: drawings recorded as wages. Money you move from the business account to your own is drawings, full stop. Logging it here makes your quarterly update show a phantom £2,000-a-month wage bill and a profit that is far too low.

Family wages deserve care too. Paying a genuine family employee a fair market rate is fine and common — but keep a note of the actual hours and work done, because a wage with no evidence behind it gets disallowed.

How to record it in your MTD tracker

Select Wages and salaries for employees' gross pay each pay run. Employer National Insurance goes in its own category, employer pension contributions in the pension category, and subcontractors tied directly to jobs belong in Cost of sales.