Allowable Expenses for Sole Traders: UK Guide 2026

Stop Overpaying Tax: A Practical Guide to Allowable Expenses for Sole Traders

One of the most effective ways to reduce your tax bill as a sole trader is deceptively simple: claim every expense you are genuinely entitled to. Yet HMRC data suggests thousands of self-employed people under-claim each year — missing out on relief for home working, mileage, training, and more. This guide walks you through exactly what you can claim, the current rates, and how to do it properly.

What Counts as an Allowable Expense?

HMRC's golden rule is straightforward: a cost must be incurred "wholly and exclusively" for business purposes to qualify as an allowable expense. Claim a cost, and HMRC deducts it from your turnover before calculating your taxable profit — meaning you pay Income Tax and Class 4 National Insurance only on what's left.

Example: Your turnover is £45,000 and you have £9,000 of allowable expenses. You are taxed on £36,000, not £45,000. At the basic rate, that could save you over £1,800 in Income Tax alone.

Mixed-use costs — where there is both a personal and business element — can still be claimed, but only for the business portion. If your mobile phone bill is £200 for the year and roughly a third of calls are personal, you may claim £133 or so as a business expense.

The Main Categories You Can Claim

1. Office and Admin Costs

• Stationery, printer ink, postage
• Business software subscriptions (accounting software, project management tools)
• Business telephone and broadband (business proportion only if shared)
• Business bank charges

2. Travel and Vehicle Costs

If you use your own car or van for business journeys, you have two options:

• Simplified mileage rate (recommended for most): From 6 April 2026, the HMRC-approved rate for cars and vans is 55p per mile for the first 10,000 business miles, then 25p per mile thereafter. This is the first increase in 15 years (it was 45p since 2011) and applies to the 2026/27 tax year, backdated to 6 April 2026. Motorcycles are 24p per mile and bicycles are 20p per mile — both unchanged.
• Actual costs method: Claim the business proportion of fuel, insurance, servicing, MOT, and road tax. You must commit to one method per vehicle — you cannot switch between the two for the same vehicle.

You must keep a mileage log recording the date, destination, purpose of the journey, and miles driven for each business trip. Ordinary commuting to a permanent workplace does not count as business mileage.

Public transport fares, parking charges, and tolls paid on genuine business trips are also allowable.

3. Working from Home

If you regularly work from home, you can choose between two approaches:

• Simplified flat rate: You must work from home for at least 25 hours per month to qualify. The monthly rates are £10 (25–50 hours), £18 (51–100 hours), and £26 (over 100 hours). Note: these flat rates do not cover telephone or internet bills — claim those separately on an actual basis.
• Actual cost apportionment: Work out a reasonable business share of your rent or mortgage interest, utilities, and council tax — for instance, by dividing by the number of rooms and the proportion of time used for business. This often gives a higher deduction if you work from home full-time.

Example: You work from home for 55 hours every month for 12 months. Using the flat rate, you claim 12 × £18 = £216 for the year — no calculations, no receipts, just a note of your hours each month.

4. Professional and Financial Costs

• Accountant and bookkeeper fees
• Solicitor fees for business matters
• Business insurance premiums (public liability, professional indemnity)
• Bank loan interest (note: under the cash basis, which is the default from 2024/25, there is a £500 cap on interest deductions — consider whether traditional accounting suits you better if your borrowings are larger)

5. Marketing and Advertising

• Website design, hosting, and maintenance
• Social media advertising spend
• Business cards, flyers, and branded materials
• Listings on professional directories

6. Training and Professional Development

Training costs are allowable if they improve skills within your existing trade. A plumber taking a gas safety refresher course — fully claimable. A plumber taking a graphic design course to start a new business — not claimable. HMRC does not allow deductions for training that prepares you for a wholly new line of work.

7. Stock, Materials, and Equipment

• Raw materials and stock for resale are fully allowable.
• Small items of equipment (tools, a work phone) purchased for business use can generally be claimed immediately under the Annual Investment Allowance (AIA), rather than being depreciated over several years. The AIA annual limit is currently £1 million.
• Depreciation itself is never an allowable expense — capital allowances fill that role instead.

8. What You Cannot Claim

• Client entertainment — HMRC specifically disallows this, even if it is genuinely business-related
• Everyday clothing — unless it is a uniform, protective equipment (e.g., safety boots, hard hats), or a costume for a performer
• Personal expenses — your supermarket shop, gym membership, or personal holidays are never allowable, even if you occasionally discuss work during them
• Fines and penalties

The £1,000 Trading Allowance: A Special Case

If your total self-employment income is £1,000 or less in a tax year, it is automatically tax-free under the trading allowance and you do not need to register for Self Assessment or claim expenses. If your income exceeds £1,000 but your actual expenses are less than £1,000, you may choose to claim the flat £1,000 allowance instead — but you cannot combine it with claiming individual business expenses. It is one or the other.

How to Claim: Step by Step

1. Keep records throughout the year. Do not wait until January. Photograph receipts with your phone immediately — HMRC accepts legible digital copies. You must retain records for five years after the 31 January Self Assessment deadline for the relevant tax year (so 2025/26 records must be kept until at least 31 January 2032).
2. Separate business and personal spending. A dedicated business bank account makes this dramatically easier and is strongly recommended.
3. Categorise as you go. Use the HMRC expense categories on the SA103 self-employment pages: office costs, travel, premises, financial charges, and so on. Good bookkeeping software will do this automatically.
4. Decide on simplified expenses or actual costs for mileage and home working before filing — use the government's simplified expenses checker on GOV.UK to compare.
5. Enter on your Self Assessment return. If your annual turnover is below £90,000, you can use the short self-employment pages (SA103S) and enter a single total for all expenses. Above £90,000, you must use the full pages (SA103F) and break expenses down by category.
6. Making Tax Digital (MTD) from April 2026. If your total income from self-employment (and/or property) exceeds £50,000, you are now required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software. Good habits formed now will make this transition straightforward.

A Quick Real-World Example

Priya is a freelance copywriter based in London. Her 2026/27 figures look like this:

• Turnover: £52,000
• Laptop (business use only): £1,100 — claimed via AIA
• Software subscriptions: £360
• Business mileage: 3,000 miles × 55p = £1,650
• Home working: 12 months at 55 hours/month = 12 × £18 = £216
• Professional indemnity insurance: £420
• Accountancy fees: £600
• Total allowable expenses: £4,346
• Taxable profit: £47,654 (compared with £52,000 if she claimed nothing)

At the basic rate of 20% Income Tax plus Class 4 NICs at 6%, that £4,346 of expenses saves Priya approximately £1,130 in tax. Well worth spending an hour a month on her bookkeeping.

Thinking About Incorporating?

Once your profits grow, operating through a limited company can open up additional tax planning opportunities — including salary and dividend combinations, and different expense rules for directors. If you are considering whether to incorporate, our team at MyTaxLead can walk you through the numbers. Find out more about forming a company here.