Self-employed people in the UK can deduct business expenses from their income before calculating tax. The lower your taxable profit, the less Income Tax and National Insurance you pay. HMRC allows any expense that is “wholly and exclusively” incurred for business purposes — meaning the cost must be for business use, not personal.
If you earn £60,000 as a sole trader and have £15,000 in allowable expenses, you pay tax on £45,000 — not £60,000. At 40% tax, that is a £6,000 tax saving from keeping good records.
The “Wholly and Exclusively” Rule
Every expense claim must pass HMRC’s core test: was the cost incurred wholly and exclusively for business?
- Pure business expense → fully deductible (e.g., accountancy fees, professional insurance)
- Pure personal expense → not deductible (e.g., gym membership, personal clothing)
- Dual-purpose expense → deduct the business proportion only (e.g., 70% of your mobile bill if 70% of usage is business)
HMRC can challenge claims that appear personal. Keep receipts and be able to explain the business purpose of each expense.
Allowable Expenses: Category by Category
1. Office Costs
| Expense | Deductible? | Notes |
|---|---|---|
| Stationery and postage | ✅ Yes | Full cost |
| Printer ink and paper | ✅ Yes | Full cost |
| Software subscriptions | ✅ Yes | Business use portion |
| Computer or laptop | ✅ Yes | Via capital allowances (see below) |
| Desk, chair, office furniture | ✅ Yes | Via capital allowances |
| Mobile phone (business-only handset) | ✅ Yes | Full cost |
| Mobile phone (personal + business) | ✅ Partial | Business-use proportion only |
2. Working from Home
If you work from home regularly, you can claim a portion of household running costs. Two methods:
Simplified flat rate (easiest):
| Monthly hours worked from home | Monthly flat rate |
|---|---|
| 25–50 hours | £10 |
| 51–100 hours | £18 |
| 101+ hours | £26 |
Actual costs method: Calculate the proportion of your home used for work (by rooms) and the hours worked, then apply that fraction to:
- Rent or mortgage interest (interest only, not capital repayment)
- Utility bills (gas, electricity, water)
- Broadband
- Council tax
Important: Claiming a room exclusively for business can trigger Capital Gains Tax on a portion of your home when you sell. The simplified rate avoids this risk.
3. Travel and Vehicle Costs
Vehicle mileage (simplified expenses):
- 45p per mile for the first 10,000 business miles per year
- 25p per mile above 10,000 miles
- 24p per mile for motorcycles
- 20p per mile for bicycles
Or actual vehicle costs: Claim fuel, insurance, road tax, servicing, MOT, and parking (not fines) — plus capital allowances on the purchase. Must apply the business-use proportion if the vehicle is also used personally.
See: How to Claim Mileage on Self Assessment
Other travel:
- Train, bus, taxi fares for business trips — fully deductible
- Hotel accommodation when working away — fully deductible
- Subsistence (meals) when travelling away from your regular base — deductible at reasonable amounts
- Parking costs during business visits — deductible (but parking fines are not)
What you cannot claim:
- Ordinary commuting from home to a regular workplace
- Travel to a fixed client site you visit daily (treated as commuting)
4. Stock, Materials, and Direct Costs
If you sell goods or use materials to produce goods or services:
- Cost of stock purchased for resale
- Raw materials consumed in production
- Direct costs of subcontractors doing work you sell on
- Packaging costs
Opening and closing stock: You deduct the cost of goods actually used or sold in the year, not all purchases. If you have unsold stock at year-end, it is carried forward as an asset rather than expensed.
5. Staff Costs
If you employ staff (including family members doing genuine work):
- Wages and salaries (must be reasonable and commercially justified)
- Employer National Insurance contributions
- Pension contributions to staff pension schemes
- Staff training directly related to their role
- Recruitment costs
Important: If you pay family members, HMRC expects wages to reflect the actual work done at a market rate. Inflating wages to family members is a common compliance risk area.
6. Professional and Financial Fees
| Fee | Deductible? |
|---|---|
| Accountant or bookkeeper fees | ✅ Yes |
| Solicitor fees (business contracts, leases) | ✅ Yes |
| Bank charges and interest on business loans | ✅ Yes |
| Credit card charges on business purchases | ✅ Yes |
| Professional membership subscriptions | ✅ Yes (if required for the business) |
| Overdraft interest on business account | ✅ Yes |
| Fine or penalty | ❌ No |
| Personal bank charges | ❌ No |
7. Marketing and Advertising
- Website costs (design, hosting, domain fees)
- Digital advertising (Google Ads, social media ads)
- Print advertising, leaflets, business cards
- PR and publicity costs
- Client entertainment is not deductible (HMRC does not allow business entertainment costs)
Client gifts: Small gifts up to £50 per person per year are deductible only if they carry a visible business advertisement. Food, drink, tobacco, or vouchers are never deductible as gifts.
8. Insurance
- Public liability insurance — fully deductible
- Professional indemnity insurance — fully deductible
- Business buildings and contents insurance — deductible
- Employer’s liability insurance — deductible
- Personal life insurance or income protection — not deductible (personal benefit)
9. Training and Development
Training costs are deductible if they update or improve skills you already use in your current business. They are not deductible if they:
- Teach you an entirely new skill or trade
- Qualify you for a different career
Example: A self-employed electrician attending a course on new wiring regulations → deductible. The same electrician taking a plumbing qualification → not deductible.
10. Subscriptions and Memberships
- Trade association memberships relevant to your business: deductible
- Professional body fees (if on HMRC’s approved list): deductible
- Charitable donations: not deductible as a business expense (claim Gift Aid separately via Self Assessment)
Capital Allowances: Equipment and Vehicles
Large purchases (laptops, vans, machinery, office furniture) are usually claimed through capital allowances rather than as direct expenses.
Annual Investment Allowance (AIA):
- Deduct 100% of the cost in the year of purchase
- 2026/27 limit: £1,000,000 (covers most sole trader equipment spending)
- Applies to: machinery, computers, tools, office furniture, most plant and equipment
Writing Down Allowance (WDA):
- Used when AIA is not available or for cars
- Main pool: 18% per year on reducing balance
- Cars over 50g/km CO₂: 6% per year on reducing balance
- Zero-emission cars: 100% First Year Allowance
Practical implication: Most sole traders buy equipment that falls within the AIA limit and can deduct the full cost immediately. You do not need to spread the cost over several years.
Simplified Expenses vs Actual Costs: At a Glance
HMRC’s simplified expenses scheme provides flat rates for three specific areas:
| Area | Simplified Rate | Alternative |
|---|---|---|
| Vehicle mileage | 45p/25p per mile | Actual vehicle costs + capital allowances |
| Working from home | £10–£26/month | Proportion of household costs |
| Living on business premises | Fixed adjustment | Actual private-use proportion |
Once you choose a method for a vehicle or your home, you generally must continue with it for that vehicle/property.
What Records to Keep
HMRC can open an enquiry into your return for up to 12 months after filing (longer if they suspect fraud). Keep:
- Receipts and invoices for every expense claimed
- Bank statements showing business account transactions
- Mileage log if claiming vehicle expenses
- Records of cash transactions (petty cash log)
Retain everything for at least 5 years from the 31 January Self Assessment deadline.
Related UK Tax Resources
- UK Self-Employed Tax Guide — Income Tax, National Insurance, Self Assessment, and payment on account
- How to Claim Mileage on Self Assessment — step-by-step vehicle expense claims
- HMRC Approved Mileage Rates — the 45p/25p rate, motorcycles, and electric vehicles
- HMRC Flat Rate Expenses — fixed deductions for employed workers
- Self Assessment Guide 2026/27 — deadlines, payment on account, and how to file
- UK Taxes Hub — income tax, capital gains, VAT, and all UK tax guides
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy