Allowable Expenses for Sole Traders: What Counts
Every allowable expense you claim reduces your taxable profit, so knowing what counts is one of the simplest ways for a sole trader to avoid overpaying tax. Claiming things that do not count, though, can cause problems later. This guide covers the main rule, the common categories, how to handle costs that are partly personal and what HMRC does not allow. It is general information, not tax advice, so check GOV.UK or an accountant for your own situation.
Key takeaways
- A cost is allowable when it is incurred wholly and exclusively for your business.
- Common categories include office costs, travel, stock, staff, financial costs, premises, marketing and training related to your current business.
- For mixed-use items such as a phone or car, claim only the business share.
- Entertaining clients, everyday clothing and commuting to a regular workplace are not allowable.
- Keep evidence for every claim, and note how you worked out any business share.
As a sole trader, you pay Income Tax and Class 4 National Insurance on your profit: your business income minus your allowable expenses. A legitimate expense you forget to claim means paying tax on money you never really earned. An expense you claim wrongly could mean extra tax, interest and possibly penalties if HMRC checks your return.
The aim is not to claim as much as possible. It is to claim everything you are entitled to, with records that back it up.
The core rule: wholly and exclusively
HMRC's test is that an expense must be incurred wholly and exclusively for the purpose of your business. In plain terms, you need to be able to say the cost was for the business and not for your personal life.
Some costs clearly pass, like the software you use only for client work. Some clearly fail, like your weekly food shop. And a large group sits in the middle: things you use for both the business and personal life. For those, the rule is to separate out the business part and claim only that.
Pro tip
Ask yourself one question for each cost: "Would I have spent this if I did not run the business?" If the answer is clearly no, it is a strong candidate. If the answer is yes, it is probably personal, or at most partly business.
What you can usually claim
GOV.UK groups allowable expenses into broad categories. The table below gives examples in each one. It is a guide, not a complete list, and whether a specific cost qualifies depends on your business.
| Category | Typical examples |
|---|---|
| Office costs | Stationery, printing, postage, phone and internet (business share), software subscriptions |
| Travel | Fuel, train or bus fares, parking, hotel stays for business trips (not commuting to a regular place of work) |
| Stock and materials | Goods for resale, raw materials, direct costs of producing what you sell |
| Staff costs | Salaries, subcontractor costs, employer contributions where relevant |
| Financial costs | Bank charges, business insurance, interest on business loans, accountant fees |
| Premises | Rent for business premises, business rates, utilities for business premises |
| Marketing | Advertising, website hosting, domain names, business cards |
| Training | Courses that update skills used in your current business |
| Clothing | Uniforms and protective clothing only |
Equipment and larger purchases
Since 6 April 2024, cash basis has been the default for sole traders. Under cash basis, most equipment purchases, such as a laptop or a camera, are simply claimed as expenses. Cars are an exception and use capital allowances instead. If you use traditional accounting, larger purchases are usually claimed through capital allowances, and the Annual Investment Allowance lets businesses deduct the full cost of qualifying plant and machinery up to £1 million a year. Cars do not qualify for the Annual Investment Allowance.
Mixed-use costs: claiming the business share
Many sole traders work from home, use one phone and drive one car. You can still claim, as long as you separate the business part in a reasonable, consistent way.
- Identify the mixed-use costs. Common ones are phone, internet, home running costs, a car and some equipment.
- Choose a fair method. Use something measurable: itemized phone bills, business miles from a mileage log, or the proportion of time and space used for work.
- Apply the percentage. Multiply the total cost by your business share and claim only that amount.
- Write it down. Keep a short note explaining your method so you can repeat it next year and explain it if asked.
Example
Imagine a freelance consultant with a made-up mobile bill of £40 a month. Looking at her itemized bills, about half her calls and data are for client work. She claims 50% of the bill, £20 a month, and keeps a note of how she checked it. For her car, she logs business journeys to client sites and claims the business share of running costs based on those miles. These figures are illustrative only.
For working from home and vehicles, there are also flat-rate simplified expenses you can choose instead of working out actual costs. Whether they suit you is a separate decision, but note that the working from home flat rate does not include phone or internet, which you still claim separately.
What you cannot claim
Some costs look business-related but are not allowable. These are the ones that trip people up most often.
- Entertaining clients. Meals, drinks or events for clients or suppliers are not allowable, even if you discussed business.
- Everyday clothing. A suit for meetings is personal clothing, even if you only wear it for work. Only uniforms and protective clothing count.
- Commuting. Regular travel between home and a permanent place of work is not allowable. Trips to client sites or temporary locations usually are.
- Personal living costs. Your own food during a normal working day, personal subscriptions and household bills (other than the business share) do not count.
- Fines and penalties. Parking fines and HMRC penalties are not business expenses.
- Your own drawings. Money you transfer to yourself is not an expense. It is your profit being paid out.
Common mistake
Claiming a training course for a brand new type of business. Training is generally allowable when it maintains or updates skills you use in your current business. Training to start something different, such as a course that qualifies you for a new profession, is usually not allowable as an expense.
Keeping records that support your claims
Every expense you claim needs evidence. If HMRC asks, you should be able to show what you bought, when, how much it cost and why it was for the business.
- Keep receipts or invoices for each purchase, digital or paper.
- Keep bank or card statements showing the payment.
- Keep mileage logs for business journeys.
- Keep notes explaining business shares for mixed-use items.
- Add a short note on receipts where the business purpose is not obvious.
A separate business bank account makes this much easier, because almost every line on the statement is a business transaction. Sole traders are not legally required to have one, but it is widely recommended.
Pro tip
If your total expenses for the year are less than £1,000, compare them with the trading allowance. You can deduct either the allowance or your actual expenses, not both, and the allowance is sometimes the better deal for low-cost businesses.
Expenses often missed by freelancers
Overclaiming gets the attention, but many sole traders actually underclaim. These legitimate costs are easy to overlook, as long as they are for your business:
- Small software subscriptions such as cloud storage, design tools, password managers or scheduling apps used for work.
- Professional fees for an accountant or bookkeeper, and bookkeeping software itself.
- Bank and payment charges, including fees taken by card processors or payment platforms before money reaches you.
- Business insurance, such as public liability or professional indemnity cover.
- Professional memberships and subscriptions related to your trade.
- Website costs, including hosting, domain renewals and paid plugins.
- Postage and packaging for products or documents sent to clients.
- Travel to client sites or temporary workplaces, including parking and fares.
Go through your bank and card statements once a quarter and look for business costs you have not recorded. It takes minutes and often turns up something you forgot.
Your allowable expenses checklist
- Set up expense categories that match the GOV.UK groupings
- Capture every receipt the day you get it
- List your mixed-use costs and decide a fair business percentage for each
- Keep a mileage log if you travel for work
- Flag anything doubtful, such as client meals or clothing, and leave it out unless it clearly qualifies
- Review your expenses before filing and compare the total with the £1,000 trading allowance
Frequently asked questions
Can I claim my laptop as a sole trader?
Usually yes, if you use it for the business. Under cash basis, equipment like a laptop is normally claimed as an expense. If you also use it personally, claim only the business share.
Are business lunches allowable?
Entertaining clients is not allowable. Your own meals on a normal working day are personal. Meals while travelling away from your usual place of work on a business trip may be allowable, so check the GOV.UK guidance for your situation.
What happens if I claim something I should not have?
If you realize after filing, you can usually amend your return. If HMRC finds it in a check, you may have to pay the extra tax plus interest, and possibly a penalty depending on the circumstances. Correcting mistakes promptly usually helps.
Can I claim expenses from before I started trading?
Some costs incurred before you started trading may be treated as allowable once the business begins, if they would have been allowable during trading. Check the rules on GOV.UK or with an accountant, and keep the receipts.
Related reading
The bottom line
Allowable expenses come down to one test: was the cost wholly and exclusively for your business? Claim everything that passes, take only the business share of mixed-use costs, leave out entertaining and everyday clothing, and keep evidence for every claim.
The rules can change, and some areas are genuinely complex. This is general information, not tax advice, so check the latest guidance from HMRC on GOV.UK or ask an accountant when you are unsure.
