Allowable Expenses for Sole Traders: What You Can Claim in 2026-27
An allowable expense is a cost you take off your income before tax is worked out, so every pound you miss is a pound taxed as profit. HMRC's test is short: the cost must be incurred wholly and exclusively for the trade. This guide lists what passes that test for a typical sole trader, what never does, how the two big judgement calls (your vehicle and your home) are handled, and where each cost lands in the itemised quarterly update you now send under Making Tax Digital.
The Test HMRC Applies
A cost is allowable when it is incurred wholly and exclusively for the purposes of your trade. It does not have to be essential, and it does not have to be the cheapest option; it has to be for the business. A van full of materials passes. A family holiday does not, even if you answered a work email from the beach.
Costs with a clear business part and a clear private part can be split. A phone used 60% for work gives a 60% business expense, as long as the split is fair and you can show how you reached it. What HMRC refuses is a cost with a mixed purpose that cannot be separated, which is why a suit worn to client meetings fails: it keeps you warm and decent as well.
Most sole traders now use the cash basis, the default since April 2024. Under it an expense counts when you pay it, not when the invoice is dated, and most equipment is simply an expense in the year you buy it. The exceptions that matter are cars, which are claimed through mileage or capital allowances instead, and land or buildings.
What You Can Claim, Box by Box
HMRC's quarterly update and the year-end submission both itemise expenses into the same set of boxes, so it helps to think in those boxes from the start. In FileThat each record takes a category and the category decides the box; the list below uses the same groupings.
• Cost of goods: materials and stock you bought to do the work or to sell on.
• Wages and staff costs: employees' pay, employer National Insurance, pension contributions you make for staff, subcontract labour you bring in outside CIS, and staff entertaining such as a Christmas meal. Never your own drawings.
• Payments to subcontractors under CIS: if you are a CIS contractor, what you pay your own subcontractors has a box of its own.
• Car, van and travel: fuel, insurance, repairs, parking and tolls for a business vehicle, or the mileage deduction instead; plus fares, taxis, hotels and meals when you work away from your normal pattern.
• Premises: rent on a workshop or unit, business rates, light, heat and water, buildings and contents insurance, public liability insurance, and the business share of your home if you work from it.
• Repairs and maintenance: fixing equipment, tools and premises so they carry on doing what they did. Improving them is a different thing and, outside the cash basis, is treated as capital.
• Phone, stationery and office costs: the business share of phone and broadband, software subscriptions, printing, postage, stationery and small office items.
• Advertising and marketing: your website, business cards, online ads, directory listings and a sign-written van.
• Professional fees: your accountant, a solicitor for business matters, and subscriptions to professional bodies on HMRC's list and to trade journals.
• Bank charges and interest: business account fees, card processing fees, and interest on business loans and hire purchase.
• Other costs: protective clothing and a uniform carrying your business name, small tools, trade insurance, and training that updates your skills or adds new ones related to the trade you already run.
Your Vehicle: Mileage or Actual Costs
For a car, van or motorbike you have two methods and you pick one per vehicle. The mileage method gives a flat amount for each business mile: 45p a mile for the first 10,000 miles in the tax year and 25p after that for cars and vans, 24p on a motorcycle and 20p on a bicycle. The rate covers fuel, insurance, servicing, repairs and the cost of the vehicle itself, so nothing else is claimed on top except parking, tolls and congestion charges.
The actual-costs method claims the business share of everything the vehicle costs to run, worked out from a mileage log that shows the split. A van bought outright under the cash basis is an expense in the year you pay for it; a car is not, and goes through capital allowances instead.
Whichever method you choose for a vehicle, you keep it for as long as you use that vehicle in your business. Two journeys never count under either method: driving between home and a regular place of work, and any trip with a private purpose. Parking fines and speeding fines are never allowable.
In FileThat a mileage entry takes the date and the miles and works out the deduction at the rates above, filing it in the car, van and travel box alongside any fares and hotels.
Working From Home
If you do some of your work at home, part of the running costs are allowable. HMRC offers a flat rate for sole traders who work at home 25 hours or more a month: £10 a month for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more. It covers heat, light and power. Phone and broadband are claimed separately on their business share.
The alternative is actual costs: take the rent or mortgage interest, council tax, insurance, heat, light and water, and apportion them by the rooms you use and the hours you use them. It is more work, and usually a bigger claim if you work from home full time.
FileThat handles both. Enter the flat-rate amount as a Rent record and it files in the premises box; if you are VAT registered, use Business rates and council tax instead, which files the same box and nothing on the VAT return, because a flat rate is not a purchase. Or enter the full household bill with a business-use percentage and only the business share is filed. The full figure stays on the record, which is what you need if the split is ever questioned.
What You Cannot Claim
• Money you take out for yourself, your own income tax and National Insurance, and your own pension contributions, which get tax relief separately.
• Entertaining customers, suppliers or prospects: the meal, the match tickets, the round of drinks. Staff entertaining is allowable; client entertaining never is.
• Everyday clothing, even if you only wear it for work. Protective clothing and a uniform that carries your business name are allowed.
• Travel between home and a regular place of work, and the private share of any mixed journey.
• Fines, penalties and interest on late tax.
• Training for a new line of work, as opposed to updating or extending the skills your current trade uses.
• Loan repayments. The interest is allowable; the capital you pay back is not.
• Depreciation. Under the cash basis most equipment is an expense when you pay for it; under traditional accounting you claim capital allowances instead and depreciation is added back.
None of these disappear from your books. Record them, mark them disallowable, and they are declared without reducing your profit. FileThat has a disallowable version of each expense category, so a cost that cannot be deducted still has somewhere to go.
Costs Before You Started Trading
Costs you paid up to seven years before your first day of trading, and which would have been allowable had you already been trading, are treated as paid on that first day. Tools, a laptop, website set-up, insurance and the stock you opened with all count. Keep the receipts; the claim goes in your first period.
The Records That Back the Claim
Under Making Tax Digital each expense is a digital record with its date, amount and category, and the quarterly update is built from those records. HMRC can ask to see the receipt or invoice behind any of them, and the records have to be kept for at least five years after the 31 January filing deadline of the tax year they belong to. What HMRC expects you to keep sets out the detail.
FileThat keeps the record and the evidence together: photograph a receipt and the amount, date and a suggested category are read off it; upload a bank statement and the business lines become records; set a business-use percentage on anything partly private. When you file, the records are itemised into HMRC's boxes, as the self-employment page describes.
With your income and allowable expenses to hand, the sole trader tax calculator gives a quick view of the tax and National Insurance the profit attracts.
Frequently Asked Questions
Can I claim the £1,000 trading allowance and my expenses?
No, it is one or the other. The trading allowance takes a flat £1,000 off your income instead of your actual costs, so it only pays when your allowable expenses for the year come to less than £1,000. Once you claim it you cannot deduct any expenses for that trade, and you choose again each tax year.
Can I claim a laptop or tools as a sole trader?
Yes. Under the cash basis, which most sole traders use, equipment is an expense in the year you pay for it, whatever it cost. Under traditional accounting it is capital expenditure and you claim capital allowances instead, which for most equipment still gives the full cost in the first year through the annual investment allowance. Cars are the exception on either basis.
Can I claim food and drink as a sole trader?
Only when you are working away from your normal pattern: an overnight stay, or a day on a site far from your usual area. Your everyday lunch is not allowable, because you would have eaten anyway. A meal with a customer or supplier is business entertaining and is never allowable, however much work was discussed.
How much can I claim for working from home?
Either HMRC's flat rate or a share of the actual costs. The flat rate is £10 a month for 25 to 50 hours of work at home, £18 for 51 to 100 hours and £26 for 101 hours or more, and it covers heat, light and power. The actual-costs route apportions your real household bills by rooms and hours, and usually gives more if you work from home most of the time.
Do I need a receipt for every expense?
You need evidence for every expense you claim, and a receipt or invoice is the evidence HMRC expects. For small cash costs where no receipt exists, a dated note of what you bought and why is better than nothing. Keep the evidence for at least five years after the 31 January deadline of the tax year it belongs to. Under Making Tax Digital the record itself is digital, and the receipt can be stored alongside it.
Does an allowable expense reduce my VAT as well?
They are separate taxes with separate rules. If you are VAT registered on the standard scheme, the VAT you reclaim on a purchase is not a cost to you, so the expense for income tax is the amount net of that recoverable VAT. On the flat rate scheme, or if you are not VAT registered, the full amount you paid is the expense.
Back to all guides
Capture Every Expense as You Go
Photograph the receipt, pick the category, and the expense is a digital record ready for the quarterly update. The Income and Expenditure ledger is free all year, and you pay only when you file. 4 free credits, no card needed.
Get Started FreeKey MTD Dates
