What can a sole trader claim as an expense? An HMRC-compliant guide
If you're a sole trader, every pound you legitimately claim as an expense reduces the profit you pay income tax and Class 4 National Insurance on. So getting your expenses right matters — both to avoid overpaying tax, and to avoid an unwelcome conversation with HMRC further down the line.
This is one of the most common questions we get asked, and the honest answer is that it's less obvious than it looks. Below is a practical guide to what you can claim, what you can't, and where the traps tend to be.
The golden rule: wholly and exclusively
Every business expense you claim must be incurred "wholly and exclusively" for the purposes of your trade. That phrase comes directly from HMRC's Business Income Manual and it does a lot of heavy lifting.
In plain English: the cost has to be there because of the business, and only because of the business. If a cost has a personal element that can't be separated out, the whole thing is disallowed — not just the personal portion. The classic example is a business suit. Even if you only wear it to client meetings, you cannot claim any of it, because clothing also provides "warmth and decency", which is a personal benefit.
Where a cost can be cleanly split between business and personal use; your mobile phone bill, broadband, the electricity you use working from home — you can claim the business proportion, provided your method of splitting it is fair and reasonable.
The main categories of allowable expense
Most sole trader expenses fall into a handful of broad categories. The list below is not exhaustive, but it covers the vast majority of what we see in practice:
Office, premises and utilities. Rent, business rates, water, gas, electricity, insurance, security, repairs and maintenance. If you rent commercial premises, these are straightforward. If you work from home, see the next section.
Communications and IT. Business phone, mobile and broadband (or the business proportion thereof), business software subscriptions, web hosting, domain names, and consumables like printer ink and stationery.
Travel. Train, bus, taxi and air fares for business journeys, parking, congestion charges, and hotel costs and meals on overnight business trips. Crucially, ordinary commuting from home to a regular workplace is never allowable — that's treated as a private cost.
Vehicles. Either the business proportion of actual running costs (fuel, insurance, road tax, MOT, repairs, servicing, breakdown cover), or HMRC's simplified mileage rates of 45p per mile for the first 10,000 business miles in the tax year and 25p per mile thereafter. You have to pick one method per vehicle and stick with it for as long as you own it. Note that you can't claim mileage on a bicycle, although you can claim the running costs of one.
Staff costs. Wages, salaries, employer's NICs, pension contributions, bonuses, staff training and subcontractor payments.
Stock and materials. The cost of goods bought for resale, raw materials, and direct costs of producing what you sell.
Professional fees. Accountants, solicitors, surveyors, architects, professional indemnity insurance, public liability insurance and other business-related insurance.
Marketing and advertising. Newspaper, magazine, directory and online advertising, direct mail, free samples, website design and SEO. Client entertainment is not allowable, however much it might feel like marketing — see below.
Subscriptions and memberships. Trade or professional journals, and membership of an HMRC-recognised professional body or trade organisation relevant to your business.
Finance costs. Bank charges, overdraft and credit card interest on business accounts, interest on business loans, hire purchase interest and leasing payments. The capital portion of loan repayments is not allowable.
Bad debts. If you use traditional accruals accounting (invoicing income when billed rather than when received), you can write off irrecoverable trade debts. Most sole traders now use cash basis by default, in which case the question doesn't really arise — you simply never recognised the income in the first place.
Working from home
This is where most sole traders either over-claim or under-claim, often both at once.
You have two methods to choose from. The simplified flat rate lets you claim a fixed monthly amount based on the number of hours you work from home each month: £10 for 25–50 hours, £18 for 51–100 hours, and £26 for 101 hours or more. You can vary the amount month by month, and you can still claim business phone and broadband costs separately on top.
The actual costs method involves calculating a fair proportion of your household bills (heating, electricity, council tax, water, mortgage interest (not capital), rent, insurance) based on the number of rooms used for business and the proportion of time they're used for business. This often produces a higher claim than the flat rate, particularly if you work from home full-time, but it requires more record-keeping.
A word of warning: do not claim that any room in your home is used exclusively for business. If you do, you may lose some of your Private Residence Relief on Capital Gains Tax when you eventually sell the property. Always make sure there's some demonstrable element of personal use, even occasionally, in any space you claim.
Equipment and capital items
There's an important distinction between revenue expenses (day-to-day running costs you can deduct in full in the year) and capital expenditure (longer-lasting items that are dealt with separately).
Computers, cameras, machinery, vans, tools and similar items are capital. For most sole traders, these are claimed via the Annual Investment Allowance (AIA), which currently allows 100% of the cost (up to £1 million per year — well above what almost any sole trader will ever spend) to be deducted from profits in the year of purchase. Where there's private use, the AIA claim has to be reduced proportionately.
If you use cash basis accounting, equipment is generally just claimed as a normal expense rather than going through capital allowances — with the notable exception of cars, which always go through capital allowances regardless of accounting method.
What you can't claim
A few common ones that catch sole traders out:
Client entertainment. Taking a customer or supplier for lunch, drinks or to a sporting event is not allowable, no matter how much business you discuss. Staff entertainment (within reasonable limits) for your own employees is treated differently, but a sole trader without staff has no one to entertain.
Everyday clothing. Suits, shirts, blouses, trousers and shoes — even if you only wear them for work. Only genuine uniform (typically branded) and protective clothing required for the job are allowable.
Your own meals. A sandwich at your desk is not allowable, however hungry you are. Subsistence is only claimable when you are travelling away from your normal place of work on business — typically an overnight trip, or a journey to a temporary workplace.
Fines and penalties. Parking fines, speeding fines, late filing penalties — none of them allowable.
Personal pension contributions. These don't reduce your trading profit. Tax relief is given separately on your Self Assessment return.
Donations to political parties. Charitable donations from a sole trader business follow specific rules and are generally claimed personally rather than against trading profits.
Capital repayments on loans or mortgages. Only the interest is allowable.
Gym membership, regardless of how good for productivity you find it.
A note on the trading allowance
If your gross trading income is £1,000 or less in the tax year, you don't need to declare it at all under the trading allowance. If your income is above £1,000, you can choose to either deduct your actual expenses or claim the £1,000 trading allowance — but not both. For most established sole traders with real expenses, deducting actual costs gives a better result, but for very small side-hustles the allowance is often the simpler choice.
Record-keeping and MTD for Income Tax
You don't need to send your receipts to HMRC, but you do need to keep them — for at least five years after the 31 January Self Assessment deadline for the relevant tax year. So records for 2025/26 need to be kept until at least 31 January 2032.
It's also worth flagging that Making Tax Digital (MTD) for Income Tax began on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, with the £30,000 threshold following from April 2027 and £20,000 from April 2028. If you're now in scope, you'll need to keep digital records and submit quarterly updates through compatible software, rather than just preparing one annual tax return. Getting your expense categorisation right at the point of recording — rather than at the year end — is now genuinely important.
A final word
Expenses are one of those areas where it's easy to leave money on the table by being too cautious, and equally easy to create a problem by being too aggressive. If you're not sure whether something is claimable, the right approach is to ask before you claim — not after HMRC asks why.
If you'd like to talk through your particular situation — including whether cash basis or accruals is better for you, whether the simplified expense flat rates or actual costs work out more favourably, or how to get your bookkeeping ready for MTD for Income Tax — please get in touch. We're always happy to have an initial conversation without obligation.