Sole trader expenses: what you can and cannot claim in the UK

Claiming the right expenses is one of the most direct ways a sole trader reduces their tax bill. Every pound of allowable expense reduces your taxable profit, which at the basic rate saves 20p income tax plus 6p of Class 4 National Insurance. Claim too little and you overpay. Claim wrongly and you risk penalties. This guide explains the rule, the common categories, the grey areas and how to record everything properly.

The wholly and exclusively rule

HMRC's test is whether a cost is incurred wholly and exclusively for the purposes of your trade. If an expense is purely for business, you can normally claim it in full. If it is purely personal, you cannot claim it. If it is mixed, you claim only the business proportion, provided you can reasonably split it.

The test sounds strict, but in practice most costs of running a business fall comfortably within it.

Common allowable expenses

Cost of goods and materials. Stock you buy to resell, and raw materials you use to make products.

Premises costs. Rent, business rates, utilities and insurance for a workshop, shop or office.

Travel. Fuel, parking, public transport and accommodation on business journeys. Normal commuting to a permanent workplace is not allowable.

Vehicle costs. Either actual running costs with capital allowances or the simplified mileage rates, but not both for the same vehicle.

Staff costs. Wages, employer National Insurance and pension contributions for employees, and payments to subcontractors.

Insurance. Public liability, professional indemnity and equipment cover.

Professional fees. Accountancy, bookkeeping and legal fees related to the business. Our bookkeeping service fee is itself an allowable cost.

Marketing. Advertising, website costs, business cards and promotional items.

Software and subscriptions. Accounting software, design tools, cloud storage and industry memberships.

Communication. Phone and internet, apportioned if you also use them privately.

Training. Courses that maintain or update skills you already use in your business.

Bank and finance costs. Business bank charges, card fees and interest on business loans.

Equipment. Tools and computers, normally claimed through capital allowances or the Annual Investment Allowance, which currently allows up to £1 million of qualifying purchases to be deducted in the year of purchase.

Costs you cannot claim

• Fines and penalties, including parking fines
• Personal clothing, even if you wear it for work, unless it is a uniform or protective clothing
• Client entertainment
• Everyday meals, unless you are travelling for work
• Personal spending, groceries and non-business items
• Depreciation, which is replaced by capital allowances
• Your own salary or drawings
• Costs of non-business activities

Grey areas

Working from home. You can claim a proportion of household costs for the area and time used for business, or use the simplified flat rates based on hours worked from home each month. Currently those are £10 a month for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more. Our blog on working from home expenses covers this in detail.

Mobile phone. If you use one phone for both business and personal calls, claim the business share, which you might estimate from itemised bills.

Clothing. Ordinary clothes are not allowable, even if you only wear them for work. A branded uniform or protective clothing is.

Meals. Meals on business trips away from your normal place of work can be claimed. Everyday lunches cannot.

Car purchase. The cost of a car is not an expense but may qualify for capital allowances. Alternatively use simplified mileage. See our mileage calculator.

Gifts. Gifts to customers are generally not allowable unless they carry a conspicuous advertisement for your business and cost less than £50 per person per year, and do not consist of food, drink, tobacco or vouchers.

Simplified expenses

Instead of tracking each vehicle cost, you can claim a flat rate per business mile: 45p for the first 10,000 miles in a car or van and 25p after, 24p for motorcycles and 20p for bicycles. Instead of apportioning home costs, you can claim a flat monthly amount based on hours worked from home. If you live in your business premises, such as a guest house, a flat rate can cover private use of the property. Simplified expenses save time but may produce a smaller claim than actual costs, so compare both.

Cash basis versus accruals

Which year an expense falls in depends on your accounting method. Under the cash basis, now the default for most sole traders, you claim expenses when you pay them. Under traditional accounting, you claim when you incur them. See our guide to cash basis versus accruals.

Evidence you need

For every claim keep a receipt or invoice and a note of the business reason where it is not obvious. Keep records for at least 5 years after the 31 January filing deadline. See how to keep receipts for HMRC.

How to record expenses correctly

1. Use a business bank account so every expense is traceable.
2. Choose clear categories, matching the headings on the Self Assessment return: costs of goods, travel, premises, admin, advertising, interest and bank charges, professional fees and other expenses.
3. Attach the receipt to the bank line.
4. Note any private use and record only the business share.
5. Review monthly, not annually.

Our guide to categorising business expenses goes through the categories in detail.

Estimating the tax saving

Suppose you earn £45,000 in turnover and have £15,000 of allowable expenses. Your profit is £30,000. For 2026/27, income tax is about £3,486 and Class 4 National Insurance about £1,046, so total about £4,532. If you forgot £2,000 of expenses, your profit would be £32,000 and tax about £5,052, a difference of about £520. Use our sole trader tax calculator to test your own figures.

Common mistakes

• Claiming personal costs as business expenses
• Forgetting small costs such as bank charges and software
• Claiming both mileage and vehicle running costs
• Failing to keep receipts
• Claiming the full cost of mixed-use items
• Treating drawings as expenses

A quick test for any expense

When you are unsure about an item, ask four questions. Is it for the business, or would I buy it anyway for myself? Would a reasonable person agree it is necessary for the trade? Is there a split between business and private use, and can I state the business share? And do I have a receipt that shows what it was? If the first answer is "I would buy it anyway", it is probably personal. If the second is yes and you have a receipt, it is probably allowable. When in doubt, record it with a note and ask your bookkeeper or accountant, instead of guessing or leaving it out.

Frequently asked questions

Can I claim expenses before I start trading?

Costs incurred in the seven years before you start can be treated as incurred on the day you start, if they would have been allowable. Keep records of what you spent.

Do I need receipts for every expense?

You need evidence for every claim. Receipts or invoices are best. For small items without receipts, use bank statements and a written note.

Can I claim my bookkeeper's fees?

Yes, bookkeeping and accountancy fees are allowable business expenses.

What happens if I claim something I should not?

HMRC can disallow the claim, charge extra tax and interest, and in some cases a penalty. Honest errors that you correct promptly are treated more leniently.

Can you help me keep my expenses right?

Yes. We code expenses correctly every month and flag anything doubtful. Get an instant quote.