Allowable expenses for the self-employed: the complete walkthrough

"Can I claim it?" is the question every self-employed person asks most, and the answer sits on one short rule: an expense is allowable if it was incurred wholly and exclusively for the purposes of your trade. Everything below is that rule applied to real life.

Allowable expenses matter because they reduce your taxable profit. You pay Income Tax and National Insurance on what is left after expenses, so every legitimate cost you fail to record is tax you did not need to pay. Equally, every cost you claim that fails the test is a problem waiting for an HMRC enquiry. Good bookkeeping is the craft of getting both right.

The golden rule, and the mixed-use exception

"Wholly and exclusively" sounds absolute, but there is a practical softening: where a cost has an identifiable business proportion, you can claim that proportion. Your mobile phone is the classic example. If roughly 60% of your calls and data are business, claiming 60% of the bill is reasonable — provided you could show how you arrived at the figure. What you cannot do is claim 100% of something you plainly also use privately.

The main categories

Office, admin and technology

Stationery, postage, printing, business software subscriptions, cloud storage, and the business share of your phone and broadband. Small items of equipment often sit here too; larger purchases are capital — see below.

Premises and working from home

Rent, business rates, utilities, security and insurance for business premises. If you work from home, you can claim either a flat rate based on hours worked or a calculated share of household costs — we cover both methods in a separate guide.

Travel and vehicles

Fuel or mileage, parking, tolls, train, bus and taxi fares, plus hotels and reasonable meals when a business trip takes you away overnight. Two firm exclusions: ordinary travel between home and a regular place of work is not allowable, and parking fines never are. For vehicles you choose between flat-rate mileage and actual running costs — a decision worth making deliberately, because it sticks for as long as you keep the vehicle.

Stock, materials and direct costs

Goods you buy to sell on, raw materials, packaging, and the direct costs of producing whatever you sell. If you subcontract part of a job, those payments belong here too (construction subcontracting has its own deduction scheme, CIS, covered in our separate guide).

Staff costs

Wages, employer National Insurance, employer pension contributions, agency fees and bonuses for genuine employees. Your own drawings — the money you take out for yourself — are not an expense. A sole trader is taxed on profit, not on what is left after paying themselves.

Financial, professional and insurance costs

Bookkeeping and accountancy fees, business bank charges, interest on business borrowing, professional indemnity and public liability insurance, and subscriptions to professional bodies relevant to your trade. Legal fees for everyday business matters are allowable; fines and penalties are not, and legal costs of buying capital assets usually follow the asset rather than being deducted outright.

Marketing

Advertising, your website, directory listings, samples and promotional materials. The sharp edge here is client entertaining: taking a customer to lunch, however commercially sensible, is not an allowable expense. It is one of the most common wrong claims we see.

Clothing

Uniforms, protective clothing and performers' costumes are allowable. Everyday clothing is not — even a suit bought purely for client meetings fails the test, because clothing also serves the ordinary purpose of being dressed.

Training

Training that updates or maintains skills you already use in your business is normally allowable. Training to enter an entirely new line of work may not be — if in doubt, take advice before assuming.

Capital purchases are different

Equipment that lasts — computers, machinery, vans, office furniture — is capital expenditure rather than a day-to-day expense, and is claimed through capital allowances. In practice the annual investment allowance often lets you deduct the full cost in the year of purchase, but the rules and limits change, so check the current position on GOV.UK. Most sole traders now use the cash basis by default, under which much equipment (cars are the main exception) is simply recorded as an expense when paid for.

Common mistakes to avoid

• Claiming 100% of a cost that is partly personal — phone, broadband, car.
• Claiming client entertaining, everyday clothing, or home-to-work commuting.
• Claiming fines: parking tickets and penalties are never allowable.
• Treating your own drawings or Income Tax payments as business expenses.
• Forgetting small cash costs and annual subscriptions — they add up to real money.
• Keeping no evidence. An expense without a receipt or record is an argument you may lose.

Keep the evidence, lightly

You must keep records supporting your return for at least five years after the 31 January filing deadline. That sounds burdensome; digitally, it is not. A photograph of a receipt captured the day you spend the money beats a carrier bag of paper every time — and once Making Tax Digital applies to you, digital records stop being good practice and become the rule.

This is exactly the drudgery our platform exists to remove. Send in receipts and statements as they happen; the bookkeeping follows our standing model — AI drafts. AgentLedger validates. People approve. — so every expense lands in the right category with a human decision behind it. If you would like that done for your business, Ask for Details.