Sole Trader Allowable Expenses: What You Can Claim

Allowable expenses for a sole trader are business costs you can deduct from your income to work out your taxable profit. The test is that the cost is incurred wholly and exclusively for the business. Where something is used both personally and for work, you can usually claim only the business share.

Claiming every expense you are entitled to — and nothing you are not — is one of the simplest ways to make sure you pay the right amount of tax. This guide lists the main categories, explains the grey areas, and shows the records you need to back up each claim.

Key takeaways

• Costs must be wholly and exclusively for the business to be allowable.
• For mixed-use items, claim only the business proportion.
• Working from home can be claimed using actual costs or a flat rate.
• Equipment is usually claimed through capital allowances.
• Keep receipts and records for every expense you claim.

What "wholly and exclusively" means

Wholly and exclusively is the core test for an allowable expense. A cost that has a clear business purpose, like materials for a job, passes. A cost that also serves a personal purpose, like everyday clothing or a family meal, does not — unless you can identify a separate business part, in which case only that part is claimable. HMRC lists the categories on GOV.UK's expenses if you're self-employed page.

Common expenses: allowable or not?

Working from home

If you run the business from home, you can claim a share of household running costs. One way is to work out the business proportion of costs like heating and electricity, based on the rooms used and the time spent working. The other is HMRC's simplified flat rate, which depends on the number of hours worked at home each month: £10 a month for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more. Check the current rates on GOV.UK's simplified expenses for working from home page. Phone and internet are claimed separately.

Vehicles and travel

Business journeys, such as visiting clients or travelling to a temporary site, are allowable; ordinary commuting to a regular workplace is not. For vehicles, you can usually choose between claiming actual running costs plus capital allowances, or a flat mileage rate. That choice tends to last for the life of the vehicle; our guide to mileage vs actual costs explains the comparison, and delivery workers can also see our courier expenses guide.

Costs before you started trading

Many new sole traders spend money before their first sale: a website, initial stock, equipment or training. Costs incurred in the seven years before trading started can generally be treated as if they were incurred on the first day of trading, provided they would have been allowable had the business already been running. Keep the receipts from that period with your first year's records.

Training is a common grey area. Courses that update skills you already use in the business are usually allowable; courses that give you a new skill or qualification for a different line of work generally are not. If you are unsure about a large cost, check HMRC's guidance or ask your accountant before claiming, because it is easier to get it right first time than to correct a return later.

Step by step: claiming expenses correctly

1. Capture receipts as you spend, ideally by photographing them into your software.
2. Pay business costs from a business account so they are easy to identify.
3. Categorise each cost using categories that match your tax return.
4. Apportion mixed-use costs using a reasonable, consistent method.
5. Separate equipment purchases for capital allowances.
6. Compare with the £1,000 trading allowance if your costs are small.
7. Keep records for at least five years after the 31 January filing deadline for that year.

Worked example (illustrative example)

"Nadia", an invented illustrative example, is a self-employed bookkeeper working from a spare room at home for about 120 hours a month. In the tax year she spends money on software subscriptions, a professional membership, business insurance, a new laptop, a share of her mobile phone bill and client lunches.

Her software, membership and insurance are allowable in full. She claims 60% of her phone bill, based on a month's itemised calls. The laptop, used only for work, is claimed through the Annual Investment Allowance. For working from home she uses the flat rate for 101 hours or more each month. The client lunches are entertaining, so she leaves them out. She keeps every receipt in her software. The person and details are invented to show how each item is treated.

Common mistakes

• Claiming personal costs or the personal share of mixed ones.
• Claiming client entertaining, which is not allowable.
• Claiming both the trading allowance and expenses.
• No receipts for costs you claim.
• Missing genuine expenses, like accountancy fees or professional subscriptions.

Claim what you are entitled to

Our personal tax service starts from £180 per year and includes reviewing your expenses before your return is filed. If you want receipts and records handled all year, our bookkeeping service starts from £150 per month. For smaller side businesses, see our guide to side income and Self Assessment; and to understand timing, read cash basis vs accruals.

Not sure what you can claim? Get in touch or see our pricing.