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Allowable expenses for sole traders: A complete guide

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If you’re a sole trader, claiming allowable business expenses can reduce your taxable profit and the amount of Income Tax you pay. Understanding which costs you can and can’t claim is an important part of completing your Self Assessment tax return accurately. This guide explains what allowable expenses are, the main rules you need to follow and the types of business costs you can usually claim.

What are allowable expenses?

Allowable expenses are business costs that you can deduct from your business income when calculating your taxable profit for Income Tax purposes. Claiming all the expenses you’re entitled to can reduce the amount of tax you pay.

To claim an expense, you should keep accurate records and make sure it meets HMRC’s rules. If you’re unsure whether a cost is allowable, you can check the guidance on GOV.UK.

The two rules you need to know

Most business expenses are judged against two key principles:

‘Wholly and exclusive’

1. Expense must be ‘wholly and exclusive’ for business use. This means that the expense must have been incurred by a business for a business purpose and there is no private benefit.

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Where an expense has both business and private use, you can normally claim only the business proportion, provided it can be calculated on a reasonable basis. For example, if you use your car for both business and personal journeys, you can usually claim the business element.

If it isn’t possible to separate the business and private use, the expense is not normally allowable.

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Revenue expenditure

2. Expenditure must be revenue, not capital in nature.Revenue expenditure covers the day-to-day running costs of your business, such as office costs, travel and advertising.

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Capital expenditure is the cost of buying or improving business assets that provide a lasting benefit, such as machinery, equipment or buildings. These costs are not usually claimed as allowable expenses, although you may be able to claim capital allowances instead.

Common examples of allowable revenue expenses include:

  • office costs
  • travel costs
  • staff costs
  • goods purchased for resale
  • business insurance and financial costs
  • business premises costs
  • advertising and marketing.
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Common allowable expenses for sole traders

If an expense is incurred wholly and exclusively for your business, you can usually claim it as an allowable expense. Common examples include:

  • Office costs: Office expenses such as stationery, postage, printing, printer ink, business telephone calls, software subscriptions and other office consumables are generally allowable.
  • Travel expenses: You can usually claim the cost of business travel, including business mileage (or actual vehicle running costs, depending on the method you use), public transport, parking fees and hotel accommodation for business trips. Ordinary commuting between your home and a permanent workplace is not usually allowable.
  • Clothing: You can claim the cost of protective clothing and safety equipment required for your work, as well as uniforms or other specialist clothing. Everyday clothing cannot normally be claimed, even if you only wear it for work.
  • Staff costs: If you employ staff, you can usually claim wages and salaries, employer National Insurance contributions, pension contributions, training costs and other employment-related expenses.
  • Stock and materials: You can claim the cost of goods purchased for resale, together with raw materials and other items used in providing your products or services.
  • Business premises: If you rent business premises, you can usually claim costs such as rent, business rates, utilities, repairs and maintenance. If you work from home, you may be able to claim a proportion of your household running costs or use HMRC’s simplified expenses, if you’re eligible.
  • Advertising and marketing: You can usually claim the cost of advertising and promoting your business, including website hosting, online advertising, social media advertising, printed marketing materials and business directories.

 

Which expenses are disallowable?

Not every business cost can be deducted when calculating your taxable profit. Some expenses are disallowable because they are for private use, relate to buying business assets or are specifically excluded by HMRC.

The following are some of the most common types of expenditure that cannot normally be claimed as allowable business expenses.

 

 

  • Repairs and renewals

    You can usually claim the cost of repairing and maintaining business assets, provided the work simply restores the asset to its original condition, in other words is day-to-day revenue expenditure.

    If the work improves or upgrades an asset, or creates something new, the cost is normally treated as capital expenditure rather than an allowable business expense. In these cases, you may be able to claim capital allowances instead.

  • Legal costs

    Legal fees may be allowable if they relate to the day-to-day running of your business. For example, you can usually claim legal costs incurred in recovering unpaid debts.

    However, legal fees are not normally allowable if they: relate to buying or improving business assets; are connected with fines or penalties; or relate to personal matters rather than your business.

  • Entertaining

    The cost of entertaining customers or other business contacts is not usually an allowable business expense.

    The cost of entertaining employees may be allowable, although in some circumstances it can have tax implications for employees and the business.

  • Donations

    Political donations are not allowable business expenses.

    Charitable donations are not usually deducted when calculating your taxable profit. However, if a payment is made wholly and exclusively for business purposes’ for example, a local sponsorship that promotes your business, it may be allowable. The circumstances of each payment should therefore be considered carefully.

What are simplified expenses?

Simplified expenses allow you to calculate certain allowable business expenses using HMRC’s flat rates instead of working out the actual business costs. They are designed to make record keeping and completing your tax return simpler.

Using simplified expenses is optional. You can choose whether to use them or claim your actual allowable business costs instead, provided you keep appropriate records.

You can use simplified expenses for:

  • business mileage
  • working from home
  • living at your business premises, where the relevant conditions are met.

Who can use simplified expenses?

You can use simplified expenses if you are:

  • a sole trader; or
  • a partner in a partnership where all the partners are individuals.

Simplified expenses cannot be used by:

  • limited companies; or
  • partnerships that include a company as a partner.

If you use simplified expenses, you simply use the relevant flat rates when calculating your allowable expenses and complete your Self Assessment tax return accordingly.

How do I claim allowable expenses?

You claim your allowable business expenses as part of your Self Assessment tax return. Your allowable expenses are deducted from your business income to calculate your taxable profit.

When completing your tax return, you’ll need to include details of your business income and expenses. The information you provide will depend on the type of Self Assessment return you complete and how you keep your business records. Our article about Self Assessment tax returns for sole traders will give you more details.

It’s important to keep accurate records of all your business income and expenses, as HMRC may ask to see evidence if it checks your tax return.

Checklist: What records do I need to keep?

Keeping accurate business records will help you complete your Self Assessment tax return and support any allowable expenses you claim. Most sole traders should keep their business records for at least six years, as HMRC may ask to see them if it checks your tax return.

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Your records may include:

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Tips for claiming allowable expenses

  • Keep your business finances separate. Using a dedicated business bank account can make it easier to track your income and expenses throughout the year.
  • Keep your records up to date. Record your income and expenses regularly and keep receipts, invoices and other supporting documents. This will make completing your Self Assessment tax return much easier.
  • Understand what you can claim. Before claiming an expense, make sure it meets HMRC’s rules. If you’re unsure whether a cost is allowable, check the guidance on GOV.UK.
  • Consider using simplified expenses. If you’re eligible, HMRC’s flat rates for business mileage, working from home or living at your business premises may make calculating your allowable expenses simpler.
  • Review your expenses before submitting your tax return. Checking your records before you submit your Self Assessment tax return can help ensure you’ve claimed all the allowable business expenses you’re entitled to.

Frequently asked questions (FAQs) about sole trader expenses

Claiming allowable business expenses can reduce your taxable profit and help ensure you pay the correct amount of tax. Keeping accurate records and understanding HMRC’s rules will make it easier to complete your Self Assessment tax return and support any expenses you claim.

  • Can I claim my lunch expenses?

    You cannot usually claim the cost of your everyday meals while carrying out your normal business activities. However, if you incur meal costs while travelling on business, they may be allowable, provided the travel itself qualifies as a business expense.

  • Are clothing expenses allowable?

    You can usually claim the cost of protective clothing, uniforms and specialist clothing required for your work. Everyday clothing is not normally allowable, even if you only wear it for business.

  • Can I claim expenses for working from home?

    If you work from home, you may be able to claim a proportion of your household running costs or use HMRC’s simplified expenses, if you’re eligible.

  • Are training courses an allowable expense?

    Training costs are usually allowable if they help you maintain or update the skills and knowledge you need for your existing business. Training that enables you to start a new trade or acquire new expertise is not normally allowable.

  • Can I claim for using my personal vehicle for business?

    Yes. If you use your own vehicle for business journeys, you can either claim HMRC’s approved mileage rates (if using simplified expenses) or claim the business proportion of your actual vehicle running costs. You should keep records of your business mileage.

  • Can I claim for using my personal mobile phone for business purposes?

    Yes. If you use your personal mobile phone for both business and personal purposes, you can claim the business proportion of your costs. You should keep records to show how you calculated the business use.

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Further Reading

Read more on simplified expenses if you're self-employed on GOV.UK's website

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