Allowable expenses for sole traders: what you can claim, what you can't, and how to keep it right

Claiming the business expenses you are entitled to is one of the simplest ways for a sole trader to avoid overpaying tax. Every legitimate cost you deduct reduces your taxable profit. That in turn reduces the Income Tax and National Insurance you owe. Yet many self-employed people either miss costs they could claim or claim things HMRC would not accept.

This guide explains the core principles, the main categories of allowable expenses, how to handle costs with both business and personal use, and the habits that keep your claims defensible if HMRC ever asks questions.

The golden rule: wholly and exclusively

The starting point for any expense is whether it was incurred wholly and exclusively for the purposes of your trade. In plain terms, you spent the money to run your business, not for personal benefit.

Two practical consequences follow:

• Purely personal costs are never allowable, even if they make working easier. Your everyday lunch is a living cost, not a business cost.
• Mixed-use costs can be split. Where something is used partly for business and partly privately, such as a mobile phone or a car, you can usually claim the business proportion, provided you can identify it on a reasonable basis.

The intention behind the spending matters. A classic example is clothing. Ordinary clothes you wear for work are generally not allowable, because clothing also meets a personal need for warmth and decency. Uniforms, protective gear and costumes needed for your trade usually are.

Common categories of allowable expenses

HMRC groups typical sole trader costs into broad headings, which broadly mirror the boxes on the self-employment pages of a Self Assessment return. The most common include:

• Office, property and equipment: rent and business rates for premises, stationery, printer ink, and small equipment.
• Business travel: fuel, parking, train and bus fares, and hotel costs for business trips. This excludes your ordinary commute to a permanent workplace.
• Staff costs: wages, employer National Insurance, pension contributions for employees, and subcontractor payments.
• Stock and materials: goods bought for resale and raw materials used in what you sell.
• Financial costs: bank charges on a business account, card processing fees, insurance, and interest on business loans.
• Legal and professional fees: accountants, solicitors and professional indemnity insurance relating to your trade.
• Marketing: advertising, website hosting, domain names and business directories.
• Training: courses that help you maintain or improve skills used in your existing business. Training aimed at starting a different line of business is treated differently.
• Subscriptions: professional bodies and trade publications relevant to your work.

Things you generally cannot claim

Some costs catch people out regularly:

• Client entertainment: taking a customer to dinner is not deductible, even if it wins you work. Entertaining your own staff can be treated differently.
• Fines and penalties: parking tickets and HMRC penalties are not allowable.
• Commuting: travel between home and a regular place of work is a personal cost.
• Your own wages or drawings: money you take out of the business for yourself is not an expense. Your profit is what gets taxed.
• Income Tax and National Insurance: these are paid on your profits, not deducted from them.

Working from home

If you run your business from home, you have two broad options.

Apportioning actual costs. You work out the business share of household bills such as heating, electricity and broadband. This is based on a reasonable method, such as the number of rooms used and the time spent working in them. This can give a larger claim, but it needs careful records and a sensible calculation.

Simplified flat rates. HMRC offers monthly flat rates based on the hours you work at home each month, starting at 25 hours or more. These have stood at £10, £18 and £26 a month across the bands for some years. The flat rate covers heating and power, but not phone or broadband. You can claim the business share of those separately.

Check gov.uk for the current flat rates before you make a claim.

Vehicles: two methods

For a car, van or motorcycle used in your business, you can choose between:

• Actual costs: the business proportion of fuel, insurance, repairs, servicing and so on, plus capital allowances on the vehicle itself.
• Simplified mileage rates: a fixed rate per business mile. For cars and vans, the rate is 55p per mile for the first 10,000 business miles in a tax year and 25p thereafter. The 55p rate applies from 6 April 2026, up from 45p. Motorcycles are 24p per mile.

Once you have used one method for a particular vehicle, you generally have to stick with it for as long as you use that vehicle in the business. Whichever you choose, keep a mileage log recording the date, journey, purpose and miles. Check gov.uk for the current rates.

The trading allowance: an alternative to claiming expenses

Sole traders can choose to use the trading allowance instead of deducting actual expenses. This is a tax-free allowance of £1,000 a year, which has been in place since the 2017/18 tax year.

If your gross trading income is under the allowance, you may not need to report it at all. If it is higher, you can deduct the £1,000 instead of your actual costs. That suits people with a small side income and minimal expenses. If your genuine costs exceed £1,000, claiming them will usually be better.

You cannot claim both on the same income. Check gov.uk for the current figure and conditions.

Cash basis and equipment purchases

From the 2024/25 tax year, the cash basis became the default method for most sole traders, though you can opt out. Under the cash basis you record income when it is received and expenses when they are paid.

A useful feature is that most equipment purchases, such as a laptop or tools, can be deducted as an ordinary expense rather than through capital allowances. Cars and land are among the main exceptions.

If you use traditional (accruals) accounting, larger purchases are generally dealt with through capital allowances instead. An accountant can help you decide which approach suits your business.

Keeping records that stand up

Your claims are only as strong as your evidence. Good habits include:

• Keep receipts and invoices for every business purchase. Digital copies are fine, as long as they are legible.
• Use a separate business bank account, even if you are not legally required to. It makes it far easier to separate business and personal spending.
• Write down your apportionment method for mixed-use costs, and apply it consistently.
• Record things as you go rather than reconstructing a year's spending in January.

For Self Assessment, HMRC generally expects sole traders to keep business records for at least five years after the 31 January submission deadline for the relevant tax year. If you are within Making Tax Digital for Income Tax, you will need to keep digital records and submit quarterly updates using compatible software. Whether it applies depends on your total self-employment and property income before expenses, from two tax years earlier: over £50,000 brings you in from 6 April 2026, over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028. Check gov.uk to see whether and when this applies to you.

When to get help

If your affairs are straightforward, HMRC's own guidance on gov.uk is clear and thorough. For more complex situations it can be worth paying for professional advice. Examples include buying a vehicle, converting part of your home into dedicated business space, or employing family members. An accountant's fees for your business are themselves an allowable expense.

MoneyHelper (moneyhelper.org.uk) also offers free, impartial guidance for self-employed people.

This article is general information and not personal tax advice. Tax rules and allowances can change at each Budget, so always check the latest position on gov.uk or with a qualified adviser.