Allowable expenses for sole traders: The complete UK guide
If you’ve recently gone self-employed, or you’ve been trading for years and still aren’t sure what you can write off, you’re not alone. The question we hear most often is: what actually counts as an allowable expense? HMRC lets sole traders deduct genuine business costs from their income, so you only pay tax on your profit. Get it right and the savings add up. Miss it and you’re handing over more than you should.
The golden rule: "wholly and exclusively"
There’s one rule that sits behind every expense claim you’ll ever make. HMRC states that a cost is only allowable if it was incurred wholly and exclusively for the purposes of your business. In practice, that means:
- It must be directly tied to your business activities
- Anything purely personal doesn’t qualify
- If you use something for both work and personal reasons, you can only claim the business portion
So if your mobile phone is used 60% for work, you claim 60% of the bill. Simple in principle, but it’s where a lot of sole traders come unstuck.
Why it matters
Allowable expenses reduce your taxable profit, which reduces your tax bill. It’s that simple. Earn £45,000, claim £10,000 in expenses, and you’re only taxed on £35,000. At the basic rate, that’s a saving of around £2,000. Higher rate taxpayers benefit even more. You’re not bending any rules. You’re using the system exactly as HMRC intends. The only question is whether you’re claiming everything you’re actually entitled to. The categories we have included below are indicative but not exhaustive, and we recommend seeking the advice of a tax expert to ensure you have included or excluded items appropriately.
Common categories of allowable expenses
Office costs and supplies
Day-to-day running costs for your workspace are fully claimable:
- Stationery, printer ink, and postage
- Business phone bills (the business proportion)
- Software subscriptions used for work
- Computer equipment (subject to capital allowances for larger items)
Working from home
HMRC gives you two options here. The simplified flat rate is the easier route. You claim a fixed monthly amount depending on how many hours a month you work from home. You must work at least 25 hours a month from home to qualify:
- 25 to 50 hours per month: £10
- 51 to 100 hours per month: £18
- 101 or more hours per month: £26
You can either use HMRC’s simplified expenses flat rate or calculate the actual business proportion of your household costs including gas, electricity, and broadband. Comparing both methods each year can help you determine which gives you the larger deduction.
Travel and transport
This is one area that catches many sole traders out.
You can claim:
- Business mileage at HMRC’s approved rate of 55p per mile for the first 10,000 business miles and 25p per mile after that for cars and vans, while motorcycles and bicycles are claimed at a flat rate of 24p and 20p per mile respectively, regardless of total mileage.
- Train, bus, taxi, and flight costs for business travel
- Accommodation and meals when travelling overnight for work
You cannot claim:
- Your regular commute from home to a fixed place of work
- Personal travel or holidays
For vehicles, you can either claim HMRC’s simplified mileage rates or claim the business proportion of your actual running costs, such as fuel, insurance, servicing, repairs and capital allowances.
If you choose the mileage method for a particular vehicle, you must continue using it for that vehicle for as long as you use it in your business and you can’t later switch to claiming actual costs for the same vehicle.
Keep a mileage log showing the date, destination, purpose of the journey and business miles travelled, as HMRC may ask to see this if they review your claim.
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Staff and subcontractors
If you pay others to help run your business, these costs are generally allowable:
- Wages and salaries for employees
- Subcontractor and freelance fees
- Employer National Insurance contributions
- Pension contributions you make on behalf of employees
Marketing and professional fees
Getting the word out and staying compliant both cost money, and most of it’s claimable:
- Website hosting, social media ads, and printed materials
- Accountancy and bookkeeping fees
- Legal fees related to your business (not personal matters)
- Business insurance premiums
- Bank charges on your business account
Training and development
Training is allowable if it’s directly relevant to your existing trade. A freelance copywriter attending a writing course qualifies. A plumber retraining for an entirely different career doesn’t. HMRC’s test is whether the training builds on skills you already use, not whether it helps you pivot into something new.
Clothing
This one catches people out regularly. You generally can’t claim for clothing, even if you only wear it for work. HMRC’s view is that clothing also serves a personal purpose. The exceptions are:
- Protective clothing required for your trade, such as safety boots or hi-vis jackets
- A uniform or branded workwear clearly identifiable as your business
Capital expenditure and allowances
There’s an important distinction between day-to-day running costs and larger purchases that benefit your business over time. If you buy equipment, a vehicle, or machinery, this usually can’t be expensed in one go under traditional accounting. Instead, you’d claim tax relief through capital allowances, such as the Annual Investment Allowance, which lets most businesses deduct the full cost of qualifying plant and machinery in the year of purchase.
From the 2024/25 tax year, cash basis is HMRC’s default accounting method for sole traders. Under cash basis, many capital purchases can be deducted in the year you spend the money, though cars still follow special rules.
What you cannot claim
Just as important as knowing what’s allowable is knowing what isn’t. HMRC won’t accept:
- Client entertainment or hospitality
- Fines and penalties, including parking fines
- Clothing that isn’t a uniform or protective gear
- Any personal expenses
Record keeping
HMRC can check your tax records going back several years, so keep accurate records of every expense you claim. If Making Tax Digital for Income Tax applies to you, you must store records digitally using compatible software.
Most people scan or photograph receipts. What matters is that the right information is recorded digitally. Photograph receipts when you get them, update your books regularly, and keep a mileage log if you claim vehicle expenses.
If your gross trading income is £1,000 or less in a tax year, you may not need to report it to HMRC. Above that, you can choose between the trading allowance or deducting actual expenses. Go with whichever gives you the lower tax bill.
See HMRC’s guidance on tax-free allowances for more.
Need help getting it right?
Allowable expenses get complicated quickly once you factor in mixed-use assets, capital allowances, or more complex situations. At Affinity Associates, our team works with sole traders and small business owners across the UK to ensure their tax affairs are fully optimised and compliant.
Get in touch with our team today to find out how we can help you keep more of what you earn.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
