Complete Guide to Sole Trader Allowable Expenses
Which costs a UK sole trader can deduct from turnover before calculating taxable profit, category by category, with the HMRC rule that applies to each. The guide also covers what you cannot claim, what records to keep and for how long, and how digital record keeping interacts with Making Tax Digital. It states that it is general information and that current rules should be checked with HMRC or a qualified accountant.
What are allowable expenses?
Allowable expenses are business costs HMRC lets you deduct from turnover before working out taxable profit, reducing the Income Tax and National Insurance you owe. The governing rule is that an expense must be incurred wholly and exclusively for business purposes.
Where a cost has both a personal and a business element, such as a mobile phone, you claim only the business proportion. Capital expenditure on equipment and vehicles is claimed through capital allowances or the Annual Investment Allowance rather than as a direct expense. You do not send receipts with your return, but you must be able to produce them if HMRC asks.
Sole traders report expenses on the self-employment pages (SA103) of the Self Assessment return, either itemised by category or, below the relevant turnover level, as a simplified three-line account. HMRC's simplified expenses method can cut record keeping for vehicles, working from home and living on business premises.
Expense categories and the HMRC rule for each
The guide works through twelve categories. Office costs cover stationery, telephone line rental, broadband, postage and business premises rent and rates, with the caveat that shared phone and broadband can only be claimed in the business proportion. Travel and vehicle costs cover public transport, fuel, HMRC approved mileage rates, parking, hotels and subsistence, and you must pick either mileage or actual vehicle costs, not both.
Clothing is allowable only for branded uniforms, protective clothing and specialist costumes; everyday clothes are never allowable even if worn only for work. Staff costs cover salaries, employer National Insurance and pension contributions, subcontractors, role-related training and recruitment fees, but never your own drawings. Stock and materials cover raw materials, goods for resale and packaging, with closing stock excluded from the expense figure.
Financial costs cover bank charges and interest on business borrowing but never repayment of loan principal. Marketing is fully deductible, though client entertainment is specifically disallowed for tax. Professional services cover accountancy, legal and professional body fees, with legal fees on acquiring property treated as capital. IT and software covers subscriptions, hosting, domains and hardware, with hardware handled through the Annual Investment Allowance. Training is allowable where it maintains or updates skills you already use, not where it opens up a new trade. Use of home offers either HMRC's simplified flat rate by monthly hours or an actual-proportion calculation. Insurance is allowable where it is wholly for business, so professional indemnity and public liability qualify but life and health cover do not.
Expenses you cannot claim
Not every business-related cost is deductible. The guide lists personal expenses, client entertaining, fines and penalties of any kind including parking fines and HMRC penalties, political donations, personal drawings, and the capital repayment element of a business loan.
Client entertaining is the most common trap. Taking a client to lunch is a legitimate business activity but HMRC explicitly disallows it as a deduction, so it has to be added back to profit on your return. The page notes that inside Taxmo, once signed in, the Tax Savings Finder flags missed deductions and surfaces savings strategies for your situation.
Record keeping requirements
Accurate records are a legal requirement for every sole trader. The guide lists what to keep: sales and income records, purchase and expense receipts, bank statements for every account used for business, mileage logs with dates, destinations, purpose and miles, records of assets bought and sold for capital allowances, and any contracts or correspondence relating to business transactions.
Self Assessment records must be retained for a set number of years after the 31 January submission deadline for that tax year, and VAT records for longer, including VAT invoices, credit notes and import or export documentation.
HMRC accepts digital records, including scanned or photographed receipts. VAT-registered businesses already have to keep digital records and file through compatible software, and from April 2026 MTD for Income Tax Self Assessment brings quarterly digital updates to sole traders and landlords above the first qualifying income band.
What Taxmo does here
The page positions Taxmo as a way to track sole trader expenses, categorise them correctly and generate reports ready for Self Assessment, with receipt scanning and automatic VAT calculation.
Common questions
What is the difference between allowable and disallowable expenses?
Allowable expenses are costs HMRC lets you deduct from business income before calculating tax, and they must be incurred wholly and exclusively for business. Disallowable expenses are real business costs that cannot be deducted for tax, the clearest example being client entertainment. It is worth tracking both, because the disallowable ones still tell you what the business actually costs to run even though they are added back on the return.
Can I claim expenses if I use the cash basis for accounting?
Yes, most allowable expenses work the same way, but there are differences. Under cash basis you claim capital items such as equipment and vehicles as expenses when you pay for them rather than through capital allowances. There is also a cap on the interest you can claim on business loans, and you cannot claim mortgage interest on a property used for business while on cash basis.
Do I need receipts for every expense I claim?
You must keep records that support your return, though you do not send them to HMRC with it. Invoices, receipts, bank statements and mileage logs are all acceptable, and digital copies such as photos or scans count. For very small purchases without a receipt, keep a written note of the date, amount and business purpose instead.
How do I handle mixed personal and business expenses?
Work out the business proportion and claim only that. Common approaches are tracking actual usage such as business versus personal calls, splitting by time spent, or applying a reasonable percentage you can justify to HMRC. Whichever method you use, keep a record of how you arrived at the split, because that is what HMRC will ask to see.
Can I claim for equipment I already owned before starting my business?
Yes. If you bring a personal asset into the business you can claim capital allowances on its market value at the point you start using it for business, not on what you originally paid. A personal laptop moved into a new freelance business is the usual example. Keep evidence of the market value you used, such as comparable listings at the time.
What happens if HMRC queries my expenses?
If HMRC opens an enquiry they can ask for evidence supporting your claimed expenses: receipts, invoices, bank statements, mileage logs and the calculations behind any mixed-use splits. HMRC generally has twelve months from the filing date to open a routine enquiry. If you cannot support a claim it may be disallowed, leaving you with additional tax, interest and potentially penalties, so organised digital records are worth keeping as you go.