The first time I went over my own books with an accountant, she asked me what felt like an obvious question: “what have you put through as expenses?”. I’d put through almost nothing, because I wasn’t sure what counted. It turned out I’d been quietly subsidising HMRC for two years. This guide is the answer I wish someone had given me on day one. It walks through what UK sole traders can actually claim in 2026, what HMRC’s “wholly and exclusively” rule means in practice, and where new founders most often miss out.
What “allowable” actually means
HMRC’s test for an allowable business expense is short and often misunderstood: it must be incurred “wholly and exclusively for the purposes of the trade”. That phrase does the heavy lifting. “Wholly” means the whole of the expense, not a fragment of it. “Exclusively” means the only reason for spending the money was the business. If there’s a personal benefit baked in, you’ve got a duality of purpose problem. The classic example is a business suit: you might wear it for client meetings, but you also need something to wear, so it fails. Branded uniform or genuine protective clothing pass; a smart suit doesn’t.
The flip side of the rule is apportionment. Where an expense is genuinely split between business and personal use, and the business portion can be measured fairly, you can claim that portion. Home broadband and a single mobile phone are the most common examples – estimate the business percentage, document how you arrived at it, and claim that share. Apportionment is HMRC’s pragmatic answer to mixed-use spend; it’s also where most sole traders either over-claim or, more often, quietly leave money on the table.
The most commonly claimable expenses
For most sole traders, the bulk of allowable spend falls into a handful of categories. Office costs cover stationery, postage, printer ink, software subscriptions and the business portion of phone bills. Travel costs cover train tickets, bus fares, parking and tolls for genuine business journeys (not your daily commute). Vehicle costs are their own special case and get their own section below. Training that maintains existing skills is allowable; training that gives you new qualifications generally isn’t – a difference HMRC takes seriously.
Beyond those, professional subscriptions to HMRC-approved bodies are claimable, as are website hosting and domain fees, marketing and advertising, bank charges on business accounts, and accountancy and bookkeeping fees. Most sole traders are surprised to discover their accountant’s bill is itself a deductible expense.
One thing worth keeping straight: an expense reduces your taxable profit; it isn’t a pound-for-pound tax saving. If you spend £100 on a deductible expense and you’re a basic-rate taxpayer, you save your marginal Income Tax (20%) plus your Class 4 National Insurance (6% in 2026/27 between the Lower and Upper Profits Limits)– a real saving of about £26. Useful, but not the £100 some founders seem to expect.
Working from home: simplified vs apportionment
Two methods are available, and they don’t produce the same number. HMRC’s simplified expenses option is a flat monthly rate based on the hours you work from home, with bands published on gov.uk. It takes a minute to apply and avoids any record-keeping beyond a count of hours. It’s also conservative: heavy home users almost always get a smaller deduction than they’d justify under the apportionment method.
The apportionment method takes a fair share of your household running costs – utility bills, council tax, mortgage interest (not capital repayment), home insurance, broadband – based on the proportion of the house used for business and the proportion of time it’s used for that purpose. Suppose you use one room out of five as an office for eight hours a day, five days a week. On a £1,800 annual electricity bill, the room represents one-fifth (£360); the working hours represent roughly half of waking weekday time, so the claim might be £180. Document the calculation and keep it with your records.
One quiet trap: a room used 100% for business can attract Capital Gains Tax on the business-use portion when you sell the property, and may have Council Tax / business rates implications. The standard advice is to keep some genuine non-business use of the room (a guest bed, a shared family computer) so the room isn’t treated as exclusively commercial. The tax consequences of breaching this are usually larger than the additional deduction.
Vehicle costs: mileage method vs actual costs
Two methods, and once you pick one for a particular vehicle you stay on it for that vehicle. The first is HMRC’s approved mileage rate (AMAP): 45p per mile for the first 10,000 business miles in a tax year and 25p per mile after that for cars and vans, 24p per mile for motorcycles, and 20p per mile for bicycles. The rate covers fuel, insurance, MOT, road tax, repairs, and depreciation – you can’t claim those separately.
The second is the actual-cost method: total your vehicle running costs for the year and apportion by business mileage. So if you drove 12,000 miles in total and 4,000 were business, you claim a third of fuel, insurance, MOT, repairs, and a capital allowance for the vehicle itself. Detailed, accurate, and worth doing for high-mileage vehicles or vehicles that are largely business-use.
For most low-to-medium-mileage sole traders, the mileage method is both simpler and more generous. The arithmetic flips when business miles climb past 10,000-15,000 a year or when the vehicle is genuinely commercial. Whichever method you use, keep a proper mileage log: date, start point, destination, business purpose, miles. Commuting from home to a regular workplace isn’t business mileage, no matter how often you do it.
Stock and goods you sell
If you buy goods to resell, the cost is allowable – but the timing depends on whether you’re using the cash basis or traditional accruals accounting. Under the cash basis (now the default for most new sole traders) you claim the cost when you pay for the stock; under accruals you match the cost to the revenue, which means closing stock at year end is added back to taxable profit because it’ll be sold next year.
Either way, don’t claim the same item twice. The most common mistake here is putting a stock purchase through as both a cost of goods sold and a separate “materials” line on the same return. Keep one ledger and stick to it. If your business carries meaningful stock and you’re unsure which basis suits you, this is one of the cheapest hours of accountancy advice you’ll ever buy.
Pre-trading expenses
Up to seven years before you start trading, expenses incurred for the purpose of the business are claimable as if they had been incurred on day one of trading. Most sole traders don’t realise this and write off perfectly legitimate costs because they predate the “going live” date.
Common examples: training in the trade itself, market research, equipment bought before opening, a website built before launch, domain fees and hosting paid in advance, professional fees to set the business up. The test is the same as for any allowable expense – wholly and exclusively for the purposes of the trade – and the practical requirement is that you keep the receipts. They go on the first tax return as if you’d spent the money on day one.
What you can’t claim
Some categories are off-limits regardless of how the spend feels from the inside. Client entertaining is almost always disallowed: a meal with a prospect to win the work isn’t deductible, even if the work materialises. Staff entertaining (a Christmas party for employees) sits under different rules and may be allowable up to per-head limits, but sole traders without employees can’t use that route on themselves.
Fines and penalties – parking tickets, late-filing penalties, motoring fixed-penalty notices – are not allowable. Donations to political parties aren’t. Personal clothing fails the test even if you only wear it to client meetings; protective gear and uniforms with a business logo pass. Legal costs that relate to acquiring or improving a capital asset get added to the asset’s base cost rather than expensed in the year. And anything that fails “wholly and exclusively” on its face is out, no matter how convenient the categorisation.
Records and Making Tax Digital
Sole trader records must be kept for at least five years from the 31 January Self Assessment submission deadline of the tax year they relate to. Receipts (paper or digital), bank statements, mileage logs, invoices, and the calculations behind any apportionment all count. Digital copies are accepted provided they’re legible.
From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for sole traders and landlords with qualifying income (gross self-employment plus property income) over £50,000. That means digital records, quarterly updates to HMRC, and a final declaration at year end – all submitted through compatible software. The threshold drops to £30,000 from 6 April 2027 and £20,000 from 6 April 2028, so most self-employed people will be in the regime within a couple of years.
Even if you’re below the threshold today, the practical move is to get MTD-ready early. Setting up the right software once – and feeding it as you go – is much cheaper than trying to retrofit the records the month before mandation hits.
Common mistakes
A short list, in rough order of frequency: mixing personal and business spending on the same card and trying to untangle it at year end; claiming clothing that isn’t protective or branded; forgetting pre-trading expenses entirely because they predate the trading date; claiming the personal portion of mixed-use expenses (broadband, phone, energy) without apportioning; and missing the home-office allowance because it feels too small to bother with. The home-office allowance is small per month, but compounds across a year and is one of the cleanest deductions on the return.
Frequently asked questions
The questions sole traders ask me most often, answered plainly.
Can I claim expenses I paid for in cash without a receipt?
Technically yes – HMRC accepts that not every expense produces a receipt. But you need to be able to show it was wholly and exclusively for the business and you should keep some kind of record (a diary entry, bank record, or contemporaneous note). HMRC are sceptical of large unreceipted claims. For anything over £20-£30, get a receipt or take a photo.
Can I backdate expenses to before I registered as self-employed?
Yes, up to 7 years before you started trading, provided the expense was incurred for the purpose of the business and would have been allowable if you had been trading at the time. Common examples include training, equipment, professional fees and market research. Treat them as incurred on day one of trading and claim them in your first tax return.
Is buying a laptop an expense or a capital purchase?
For most sole traders using the cash basis (now the default) you can simply expense it in the year you buy it, provided it’s wholly and exclusively for the business. If you use traditional accounting, it’s a capital item and you’d typically claim it through the Annual Investment Allowance, which is 100% relief on qualifying plant and machinery up to £1 million per year. Either way, the relief is the same; the timing is the same; only the bookkeeping differs.
Can I claim the cost of my MBA or a new professional qualification?
Usually not. HMRC distinguishes between training that maintains existing skills (allowable) and training that gives you new skills or qualifications (not allowable as an expense, because it’s seen as enhancing your earning capacity). A web developer keeping up with the latest framework is fine. A web developer doing an MBA isn’t, in HMRC’s view. There are edge cases – get advice if a substantial training cost is in question.
I work from home. Can I claim a share of my mortgage?
You can claim a share of the mortgage interest (not capital repayment) if you apportion fairly between business and personal use. Most sole traders use HMRC’s simplified flat-rate method instead, which avoids the calculation and the risk that a “dedicated” home office triggers Capital Gains Tax on the business-use portion when you sell the property. If your business use is high, the actual-cost method may be worth more – work out both and pick the bigger number.
How does Making Tax Digital change what I can and can’t claim?
It doesn’t change what’s allowable. It changes how you record and report. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and submit quarterly updates to HMRC using compatible software. The list of allowable expenses is unchanged. The record-keeping bar is just higher.
Can I claim my phone bill if I use it for both personal and business?
Yes, but only the business portion. The simplest way is to estimate the percentage of calls and data that’s business and apply it to the bill. Keep a note of how you arrived at the percentage in case HMRC asks. Some sole traders take a clean approach by getting a separate business mobile or a second SIM for business calls – that makes the whole bill a clean expense.
How long do I need to keep my expense receipts?
At least 5 years after the 31 January submission deadline of the relevant tax year. So receipts from the 2026/27 tax year (filed by 31 January 2028) need to be kept until at least 31 January 2033. Digital copies are fine – HMRC accepts photographs and scans, provided they’re legible.
