Allowable Expenses for the Self-Employed: The Complete Guide

The wholly and exclusively test

An expense is allowable if it was incurred wholly and exclusively for the purposes of the trade. That is the whole test, and everything else follows from it.

Where a cost has both a business and a private purpose, you either apportion it on a fair and defensible basis or you do not claim it. A phone used sixty per cent for work supports a sixty per cent claim, provided you can explain how you arrived at the figure.

Some costs fail the test outright regardless of intent: everyday clothing, ordinary commuting to a permanent workplace, client entertaining, fines and penalties, and your own drawings, which are a withdrawal of profit rather than an expense.

Office and workspace costs

If you work from home you can claim a proportion of household running costs: heating, electricity, water, council tax, rent or mortgage interest, and home insurance. The requirement is that you use an area of the home regularly for business during working hours.

The simplest route is HMRC's simplified expenses flat rate for working from home, which pays a fixed monthly amount in bands according to how many hours a month you work there. It needs no receipts, only a record of hours. The bands and rates are published on GOV.UK.

The alternative is to calculate the actual business proportion: divide the household bills by rooms used and by the share of time the room is used for business. This usually gives a larger deduction and requires you to keep every bill as evidence.

Beyond the home, office furniture, equipment and stationery used for business are claimable. Consumables and small items are deducted in the year of purchase. Larger capital items go through capital allowances, where the Annual Investment Allowance lets most sole traders deduct the full cost in the year of purchase up to a published limit.

Travel and mileage

Business travel is one of the largest deductions for many self-employed people: journeys to a temporary workplace, to clients, to suppliers, and to industry events or training. Ordinary commuting between home and a regular permanent workplace is never allowable.

For your own vehicle, the simplified mileage method pays a set rate per mile, at a higher rate for the first tranche of business miles in the tax year and a lower rate after that, with separate rates for motorcycles and bicycles. The rate covers fuel, insurance, road tax, servicing and depreciation, so you cannot also claim those costs. HMRC publishes the current approved mileage rates.

Whichever method you use, keep a mileage log with the date, destination, purpose and miles for each journey. HMRC can ask for it, and a claim without one is hard to defend.

Public transport fares for business journeys are fully deductible, as are parking and congestion charges incurred on business travel. Overnight business trips allow reasonable hotel and meal costs. HMRC does not set a meal limit, but reasonable is the standard and lavish will be questioned.

Stock, materials, clothing and staff

If you sell physical goods, raw materials, stock bought for resale, packaging and postage are all allowable and are deducted as cost of goods sold. Where stock crosses the year end, only the cost of goods actually sold in the year is an expense; unsold stock is an asset, not a deduction.

Clothing is the category people get wrong most often. HMRC allows uniforms, protective clothing and costumes. A branded shirt, hi-vis, steel toe caps and chef whites qualify. A suit worn to client meetings does not, even if you never wear it otherwise. The test is whether the clothing is unsuitable for everyday wear or clearly identifiable as a uniform.

Wages and salaries, employer National Insurance contributions, and payments to subcontractors and freelancers are deductible. If you engage subcontractors in construction, the Construction Industry Scheme may require you to deduct tax from their payments and report to HMRC.

Commonly missed physical costs include tools and small equipment, cleaning supplies, printing, trade samples, and business gifts within HMRC's limits, which exclude food, drink and tobacco. Consumables and maintenance for a workshop, studio or commercial kitchen are deductible too.

Technology and communications

Software subscriptions, cloud services and digital tools used for the business are deductible in the year you pay for them: accounting software, project management, design tools, web hosting, domains and email services.

Hardware such as laptops, monitors, tablets and phones is claimable at the business proportion. Where an item is used exclusively for business, the full cost qualifies. Capital items generally go through capital allowances rather than being written off as a single-year running cost, which is where the Annual Investment Allowance does the work.

Phone and broadband are claimable at the business proportion of the bill. A dedicated business line or SIM is fully deductible. Website design, development, maintenance and hosting are allowable business costs.

The small digital costs add up and are easy to forget: stock photography, cloud storage, VPN services, and online advertising spend.

Professional development, marketing and the entertaining trap

Professional subscriptions and memberships relevant to your trade are deductible: trade bodies, professional associations, industry groups and regulatory memberships.

Training is allowable where it updates or maintains skills you already use in the business. A designer taking an advanced course in a tool they already use, or a developer attending a conference in their field, can claim. Books, journals and learning subscriptions related to the trade are deductible too.

The line HMRC draws is between updating existing skills, which is allowable, and acquiring new ones that equip you for a different trade, which is not. A plumber cannot claim the cost of training as an electrician.

Marketing and networking costs are deductible: business cards, brochures, exhibition stands, event tickets and advertising. Client entertaining and hospitality are specifically disallowed for tax. You can record the cost in your accounts, but it is added back when calculating taxable profit, so it gives no relief.

Financial and insurance costs

Accountancy fees, tax advice and bookkeeping services are deductible, including the fee for preparing your Self Assessment return. Legal fees relating to the trade are allowable, though legal costs of acquiring property or capital assets are treated differently.

Business insurance premiums are deductible: professional indemnity, public liability, employer's liability, cyber and contents cover for business equipment. On a combined home and business policy, claim the business proportion.

Bank charges, interest on business loans and overdrafts, card fees on business transactions, payment processing charges and foreign exchange fees on business payments are all allowable. If business runs through a personal account, claim only the charges attributable to business transactions.

Bad debts can be written off where an invoice is genuinely irrecoverable and you made reasonable efforts to collect. Keep the invoice, the collection attempts and the reason. Pension contributions are not a business expense: they get relief separately through your tax return.

Habits that protect the claim

Record expenses as they happen. Photograph receipts and log them the same day. Reconstructing a year of spending in January is how deductions get lost.

Use a separate business bank account. It makes business transactions trivially easy to identify and evidence, and most banks offer free accounts for sole traders.

Compare simplified rates against actual costs for home working and vehicles each year, because the better method changes with your circumstances.

Keep records for the period HMRC requires after the filing deadline, which is published on GOV.UK. Digital copies are acceptable: photographed receipts, PDF invoices and bank statements, backed up somewhere you can retrieve them during an enquiry.

Review deductions each quarter rather than annually. With MTD for Income Tax bringing quarterly updates for many sole traders, that review is happening anyway. Taxmo captures receipts and categorises expenses through the year so the quarterly check is a review rather than a rebuild.

Common questions