What you can and cannot claim as a sole trader, the wholly and exclusively rule, working from home, mileage, and keeping records that stand up.
One of the easiest ways to pay too much tax as a sole trader is to forget the expenses you are entitled to claim. Because you only pay tax on your profit, every allowable expense you record reduces your tax bill. This guide explains what you can and cannot claim as a self employed person in 2026/27, the golden rule behind it all, and how to keep records that stand up to scrutiny.
To be allowable, an expense must be incurred wholly and exclusively for the purposes of your trade. If a cost is partly business and partly personal, you can usually claim only the business share. A mobile phone used for both work and home life is a classic example, where you claim the proportion that relates to your business and leave the rest.
Typical allowable costs include stock and raw materials, the cost of premises such as rent, heat and light, office costs like stationery, software and phone bills, and travel for business such as fuel, train fares and parking. You can also claim staff wages, professional fees including your accountant, marketing and advertising, business insurance, and bank charges or interest on a business account.
If you work from home, you can claim a fair share of your household running costs, such as heating, electricity and broadband, based on how much you use them for work. Alternatively, HMRC offers simplified flat rate amounts based on the number of hours you work from home each month, which saves you working out the exact split.
Larger items that you buy and keep for the business, such as a computer, tools or machinery, are usually claimed through capital allowances rather than as an everyday expense. The Annual Investment Allowance lets most businesses claim the full cost of qualifying equipment in the year they buy it. Cars are treated differently, with the amount you can claim depending on their emissions.
If you drive for work, you can either claim the actual running costs of the business proportion of your motoring, or use HMRC's simplified mileage rates, which allow a set amount per business mile. The mileage method is simpler and avoids splitting every fuel and repair bill, but you must stick with one method for each vehicle once you choose it.
Some costs are never allowable, however much they feel part of running a business. You cannot claim the cost of entertaining clients, your own everyday clothing, fines and penalties such as parking tickets, or the personal part of any cost. Money you take out of the business for yourself, known as drawings, is not an expense either, it is simply your profit being paid to you.
Whatever you claim, you must be able to back it up. Keep your receipts and invoices, ideally captured digitally through a bookkeeping app, so your claim is accurate and you have the evidence if HMRC ever asks. With Making Tax Digital arriving, good digital records are becoming essential rather than optional.
Costs incurred wholly for your business, such as stock, premises, office costs, business travel, staff wages, professional fees, insurance and a share of home and phone costs.
Yes, either a fair share of your actual household costs based on business use, or HMRC simplified flat rate based on the hours you work from home.
You can claim either the business proportion of actual running costs or HMRC flat mileage rate per business mile, but you must use one method per vehicle.
Client entertaining, everyday clothing, fines, the personal share of any cost, and your own drawings from the business.
The single rule that governs every business expense is that it must be incurred wholly and exclusively for the purposes of the business. If a cost is purely for the business, it is allowable. If it is purely personal, it is not. If it is a mix, you can usually claim the business proportion, as long as you can identify it fairly, such as the business share of a phone bill or a car. Keeping this rule in mind answers most questions about whether something can be claimed.
If you rent business premises, the rent, business rates, heating, lighting and insurance are allowable. If you work from home, you can claim a fair share of your household running costs, or use HMRC's simplified flat rate based on the hours you work from home each month. Either way, a genuine home working cost is a legitimate deduction that many sole traders forget to claim.
Business travel is allowable, but ordinary commuting to a regular workplace is not. For a car you have two choices. You can claim the simplified mileage rate of 45 pence a mile for the first 10,000 business miles and 25 pence after that, which covers everything to do with running the car, or you can claim the business proportion of your actual motoring costs including fuel, insurance, repairs and capital allowances. You cannot mix the two for the same vehicle, so work out which is better for you.
The cost of stock you buy to sell, and the raw materials you use, are allowable against the income from selling them. Smaller tools and equipment are usually allowable too. Larger items that last, such as machinery, computers or a van, are claimed as capital allowances, and the annual investment allowance lets most businesses deduct the full cost of qualifying equipment in the year they buy it.
Advertising and marketing, including a website and online ads, are allowable. So are professional fees such as accountancy and certain legal costs, and the cost of business insurance. Bank charges and interest on a business loan or overdraft can be claimed, as can the fees charged by payment platforms. These everyday costs add up, and claiming them all makes a real difference over a year.
If you employ people, their wages, your employer National Insurance and pension contributions are allowable, as are payments to subcontractors. When you are away from your normal base on business, reasonable subsistence such as meals and accommodation can be claimed, although the rules expect this to be genuine business travel rather than ordinary daily meals near your usual workplace.
Clothing is a common area of confusion. Ordinary clothing is not allowable even if you only wear it for work, but genuine protective clothing and recognisable uniforms are. Training that maintains or updates the skills you already use is usually allowable, while training to learn a completely new trade is generally not, because it is seen as creating a new asset rather than running the existing business.
Some costs are never allowable, including your own personal living costs, ordinary commuting, client entertaining, fines and penalties, and the personal use proportion of any mixed cost. Trying to claim these is one of the quickest ways to attract attention from HMRC, so it is far better to claim everything you are genuinely entitled to and nothing you are not.
For some costs HMRC offers simplified flat rates instead of exact figures. These cover vehicles through the mileage rate, working from home through a monthly flat rate based on hours, and living in your business premises. Simplified expenses save time and suit modest or hard to split costs, although for higher costs the actual method can be worth more, so compare the two.
Before you file, run through the obvious categories so nothing is missed. Have you claimed your home working costs, your business mileage or motoring, your stock and equipment, your insurance, your phone and internet, your accountancy and professional fees, your bank and platform charges, and your marketing? Most sole traders who feel their tax bill is too high are simply not claiming everything they are entitled to.
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