What Can a Sole Trader Claim as an Expense? The Complete UK Guide for 2026

Most sole traders get their expenses wrong in one of two ways. They under-claim, because they're not sure what counts and would rather be safe than sorry. Or they over-claim, and spend the next year quietly worrying about an HMRC letter.

Getting it right is mostly about one rule, applied consistently. This guide walks through that rule, the categories it applies to, and the handful of places where sole traders most often lose money or get tripped up.

One thing worth saying up front. From 6 April 2026, Making Tax Digital for Income Tax changes how you evidence expenses throughout the year. It does not change what you can claim. The rules below apply whether you're on the old system or the new one.

The one rule: wholly and exclusively

Every allowable expense has to pass the same test. The cost must be incurred wholly and exclusively for the purposes of your trade.

That word "exclusively" is the one that matters. If an expense has any private purpose at all, even a small one, even one you didn't consciously think about, it usually fails.

The classic example is a barrister called Mallalieu who tried to claim the cost of the black clothes she was required to wear in court. She argued the only reason she bought them was professional. The House of Lords disagreed. Even if she consciously bought them for work, she was also wearing them for warmth and decency, the basic things clothes do for anyone. Dual purpose, not allowable.

The same logic knocks out a lot of things people hope to claim. A nice lunch while you work. Everyday clothes you only wear to client meetings. A gym membership that keeps you fit enough to do your job. All dual purpose. All disallowed.

There is an escape hatch, and you'll rely on it constantly. If part of an expense is clearly for business and part is clearly private, you can claim the business portion. Your mobile phone bill is the obvious case. If 70% of your calls are for work, you claim 70% of the bill. This is called apportionment, and most of the real work of getting expenses right is doing it sensibly.

The mixed-use problem

Four things cause more confusion than the rest combined: your phone, your broadband, your car, and your home. Each one is almost always part-business, part-private, so each one needs apportioning.

Phone and broadband

If you have a dedicated business line or a separate business mobile contract, you claim 100% of it. Simple.

If you use your personal phone and home broadband for work, you claim a reasonable business proportion. HMRC's own example is a £200 mobile bill split £130 personal and £70 business; you claim the £70.

There's no magic formula. Work out roughly how much of your use is for the business, keep a note of how you got there, and be consistent year to year. Claiming 100% of a family broadband package is the kind of thing that invites a closer look.

Vehicles

You have two methods, and you have to pick one for each vehicle and stick with it.

Simplified mileage. Claim 45p per business mile for the first 10,000 miles in the tax year, 25p per mile after that. You keep a mileage log and that's it. No tracking fuel, insurance, or servicing separately. The same rates apply to electric vehicles; HMRC has no reduced rate for EVs.

Actual costs. Track all the running costs (fuel, insurance, servicing, MOT, road tax) and claim the business proportion. You can also claim capital allowances on the vehicle itself (the rules differ by CO₂ emissions, with a 100% first-year allowance still available for new electric cars).

Once you pick a method for a vehicle, you're stuck with it for as long as you own that vehicle. You can choose differently for the next car. For most sole traders, mileage is simpler and often gives a similar or better result.

One thing to get right: travel from home to a regular place of work is commuting, not business travel. A self-employed therapist who runs sessions at a clinic three days a week can't claim the drive there. This surprises people. There's a case called Samadian that settled the point: if you attend an external venue on a regular and predictable basis, the journey from home is treated as commuting even though you're self-employed.

Travel between two business locations is fine. Travel to a one-off client site is fine. Travel as part of an itinerant trade (a mobile hairdresser, a scaffolder on different sites each week) is fine. The issue is only with regular, predictable journeys to the same place.

Working from home

Two methods again.

Simplified flat rate. If you work from home at least 25 hours a month, you can claim:

• £10/month for 25–50 hours
• £18/month for 51–100 hours
• £26/month for 101+ hours

Maximum £312 a year. Easy, no receipts needed. But it doesn't include phone or broadband, so claim those separately using apportionment.

Actual costs. Work out a reasonable proportion of your heat, light, council tax, rent or mortgage interest (not the capital repayment), and insurance. HMRC's example: a four-room house, one room used only as an office, annual electricity bill £1,120; you claim a quarter, £280. If you only worked one day a week from home, divide by seven.

For most sole traders with modest home-office use, the flat rate is close enough and isn't worth the hassle of the actual method. If you work from home a lot and have high bills, the actual method wins.

The home office CGT trap (and the simple fix)

This one catches people out and almost nobody mentions it.

When you sell your main home, the profit is usually free of Capital Gains Tax thanks to Private Residence Relief. But if a room has been used exclusively for business, you lose the relief on that proportion of the sale.

The fix is one sentence: don't use any room exclusively for business. If the room you work in also gets used occasionally for something else (a guest bed, storage, your kids' homework) the exclusive-use test fails and your CGT relief stays intact. HMRC's own guidance confirms that minor residential use is enough.

This matters more than you'd think. On a £400,000 home sale with one room out of five used "exclusively" for business, you could be looking at a CGT bill in the thousands on something you'd never have factored in. A laptop on the kitchen table, or an office that's also a spare bedroom, avoids the problem entirely.

The main categories

Rather than list every possible expense, here are the categories most sole traders deal with, what's allowable in each, and the thing that most commonly trips people up.

Premises and working from home

If you rent a commercial space (a workshop, studio, shop, or office), rent and business rates are fully allowable, along with the running costs (heating, lighting, water, insurance, cleaning, repairs).

If you work from home, see the section above.

You can't claim the cost of buying premises as an expense. The purchase is capital, not revenue. Interest on a business loan used to buy the premises is allowable; the capital repayment isn't.

Travel and subsistence

Business travel is allowable: train, bus, taxi, flights, parking, tolls, and overnight accommodation on genuine business trips. Meals while staying away from home overnight for work are allowable.

What isn't allowable: your lunch on a normal working day, even if you're at your desk grinding through a project. The reasoning goes back to a case called Caillebotte where a self-employed carpenter tried to claim the extra cost of lunch on site. The judge's line became famous: you eat in order to live, not in order to work. Routine meals near your normal workplace are a living expense.

One genuine exception: meals on occasional business trips outside your normal pattern, and for itinerant traders on the road.

Equipment, tools and software

If you're on the cash basis (which is now the default; see below), most equipment you buy is expensed directly in the year you pay for it. Laptop, camera, tools, software subscriptions: all allowable in full if used wholly for business, or apportioned if mixed-use.

Cars are the exception, even on the cash basis. You claim capital allowances on the car itself and can't just expense it.

If you're on traditional accounting, equipment is capital rather than revenue, and you claim capital allowances instead. For most sole traders this is an academic distinction; cash basis is simpler and produces a similar result for typical spending levels.

Software subscriptions (your accounting software, design tools, project management apps) are allowable where used for business.

Stock, staff and subcontractors

Cost of goods you buy to resell, or materials you use to deliver a service, are allowable. Under cash basis, you claim when you pay. Under traditional accounting, you claim when the cost is incurred.

If you have employees, their wages, employer's NI, pension contributions and training costs are allowable. Payments to subcontractors are allowable too, though if you're in construction you'll need to apply CIS deductions where relevant.

Professional costs

Allowable: accountancy fees, bookkeeping, software subscriptions for running the business, professional indemnity insurance, public liability insurance, bank charges on a business account, interest on business loans, memberships of approved professional bodies (there's a list HMRC maintains). Your Solas subscription is allowable too: it's a bookkeeping and tax tool used wholly for the business.

Legal fees for routine trading matters (chasing a debt, employment disputes, contract work) are allowable. Legal fees for capital transactions (buying premises, restructuring the business) generally aren't.

Fines and penalties aren't allowable. Parking tickets, speeding fines, regulatory penalties, late-filing penalties: none of them. There's a principled reason: allowing deductions for fines would dilute their punitive purpose.

Marketing and advertising

Website costs, SEO, social ads, print advertising, sponsorship with a clear advertising purpose, business cards, branded materials: all allowable. Free samples given to promote the business are allowable.

Client entertainment is not allowable. It has its own statutory disallowance, separate from the wholly-and-exclusively rule. Taking a client out to lunch, to a match, to the theatre, to a corporate box: none of it counts, even though it's obviously business-related. This includes drinks at industry events.

Small promotional gifts (under £50 per recipient per year, conspicuously branded, and not food, drink, tobacco or vouchers) are allowable as an exception.

Training

The rules here got better in March 2024 and a lot of older guides haven't caught up.

Training is now allowable if it updates your existing expertise, keeps you current with technology or industry changes, or develops new skills related to your business, including admin skills like bookkeeping, marketing, and digital tools. So a plumber learning heat pumps, a designer learning AI tools, a consultant taking a course on financial modelling: all allowable.

What's still not allowable: training that qualifies you to start a completely new trade. A taxi driver training as a plumber is claiming the cost of entering a new business, which is capital and disallowed.

Simplified expenses vs actual costs

You've seen simplified expenses pop up twice now: for mileage and for working from home. There's a third category (living at your business premises, for the handful of people that applies to).

The principle is always the same: HMRC offers a flat rate as an alternative to working out actual costs. The flat rate is easier. The actual-cost method often gives a bigger claim if your real costs are high.

The £1,000 trading allowance

If your gross income from self-employment is £1,000 or less in a tax year, you don't need to register for Self Assessment at all. You don't need to tell HMRC. You don't pay tax on it.

If your gross income is over £1,000, you can choose between:

• Claiming the £1,000 allowance (and no other expenses), or
• Claiming your actual expenses as normal.

You can't claim both. Pick whichever gives you the lower taxable profit.

For a side hustle with minimal costs (selling digital downloads, a bit of freelance work, small commissions), the £1,000 allowance is usually the better deal. For anyone with real running costs, actual expenses will win.

One catch: if your actual expenses exceed your income and you want to claim the loss, you have to use actual expenses. The trading allowance can't create a loss.

Cash basis vs traditional accounting

Since April 2024, cash basis is the default for sole traders. If you don't actively choose otherwise, this is the method you're on.

Cash basis means you record income when money arrives in your account and expenses when money leaves it. No chasing invoices you haven't been paid for. No worrying about cut-off dates at year end.

Traditional accounting (also called accruals) means you record income when you earn it and expenses when you incur them, regardless of when the money actually moves.

Cash basis is simpler and suits most sole traders. The previous restrictions (turnover caps, limited interest deductions, no sideways loss relief) were all removed in 2024. There's now very little reason to use traditional accounting unless you have a specific need: you carry a lot of stock, you have big timing differences between billing and getting paid, you want to present accruals-based accounts to a lender, or you're in one of the specialist categories (farmers using averaging, for example).

If you want to switch, you do it on your tax return, or from April 2026 in your MTD software.

What changes under Making Tax Digital

From 6 April 2026, Making Tax Digital for Income Tax applies to sole traders with gross income over £50,000. From April 2027, the threshold drops to £30,000. From April 2028 (subject to legislation), it drops to £20,000.

The important thing to understand: the rules on what you can claim don't change. Every category above works the same way. What changes is how you keep records and how often you report them.

Three practical differences:

One: records have to be digital. Your transactions (the amount, date, and category of each income and expense) have to be recorded in compatible software. A notebook and a shoebox of receipts is no longer enough on its own.

Two: you send quarterly updates. Four times a year, your software sends HMRC a summary of your income and expenses. These aren't tax returns; they're running totals, no tax adjustments needed. You'll still do a final declaration at the end of the year (replacing the old Self Assessment return) by 31 January, which is where any year-end adjustments happen.

Three: you can't move records around manually. Once a transaction is in your MTD software and has been sent to HMRC, you can't copy-paste it into a spreadsheet or retype it somewhere else. If you use more than one piece of software, they have to be connected digitally (via API, linked spreadsheet cells, or import/export, not cut-and-paste).

What doesn't change, which catches people out: you don't have to digitise your paper receipts. HMRC requires the transaction data (amount, date, category) to be digital. The receipt itself can stay on paper in a shoebox, as long as you can produce it if asked. Photos of receipts stored in your software are fine too. Most people find photographing them is easier than keeping the paper, but it's not a legal requirement.

You need to keep records for at least five years after the 31 January submission deadline for the relevant tax year.

For the 2026/27 tax year only, HMRC has confirmed that late quarterly updates won't attract penalties, a "soft landing" while everyone gets used to the new system. The final declaration deadline and late-payment penalties still apply as normal.

Record-keeping, briefly

HMRC requires you to keep records for five years after the 31 January submission deadline for each tax year. That's roughly five years and ten months after the end of the tax year itself.

What counts as a record: your invoices, receipts, bank statements, mileage logs, and anything else that shows how you arrived at the numbers on your return. Under MTD, the transaction data needs to be digital. The supporting paperwork (the actual receipt or invoice) can be either.

If HMRC opens an enquiry, they'll ask to see the evidence behind specific claims. Having it organised and findable is the difference between a short letter and a long correspondence.

FAQ

Can I claim for lunch when I'm working from home? No. Routine meals near your normal place of work (including your home) are a living expense, not a business expense. Meals on overnight business trips or as part of genuinely itinerant work are allowable.

Can I claim for a laptop I also use personally? Yes, but you claim the business proportion, not the full cost. If you use it 80% for work and 20% personally, you claim 80% of the cost (or 80% of the capital allowances if you're on traditional accounting). Be reasonable and consistent about the split.

Can I claim for clothes I wear to client meetings? Generally no. Everyday clothing (suits, smart dresses, shirts) is never allowable, even if you only wear it for work. The exceptions are uniforms with visible branding, protective clothing, and genuine costumes for performers.

Can I claim expenses from before I registered as self-employed? Yes. You can claim revenue expenses incurred up to seven years before you started trading, as long as they would have been allowable after you started. Common examples: a laptop bought before your first client, website costs while setting up, a course that maintained skills you're now using. They're treated as being incurred on your first day of trading.

I earn less than £1,000 from a side hustle. Do I need to tell HMRC? No. If your gross income from self-employment is £1,000 or less in a tax year, you don't need to register or report it. Keep a note of the income in case things grow.

Do the expense rules change under Making Tax Digital? No. What you can claim stays exactly the same. What changes is how you record and report expenses: you'll need compatible software, you'll send quarterly updates, and your transaction data has to be digital.

How long do I need to keep receipts? Five years after the 31 January submission deadline for the relevant tax year. Paper receipts are still acceptable; digital photos of them are also fine.

Can I claim my accountant's fee? Yes, accountancy and bookkeeping fees for preparing business accounts and tax returns are allowable. Fees for personal tax advice unrelated to the business aren't.

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Most sole traders don't need to memorise any of this. You need a system that handles it quietly in the background and shows the working when you ask. That's what we built Solas for: allowable expenses, MTD compliance, and your Self Assessment in one place, designed around the rules above. Try it free.

A note for Scottish readers: income tax rates and bands differ in Scotland, but the rules on allowable expenses are the same across the UK.