HMRC Allowable Expenses for Sole Traders: Complete Checklist 2025/26

HMRC allows sole traders to deduct expenses that are wholly and exclusively for business purposes. These deductions reduce your taxable profit, cutting both your Income Tax and Class 4 National Insurance bill. Knowing what qualifies — and what does not — is the difference between an accurate return and one that triggers a compliance check.

Disclaimer: UK tax law changes each tax year. Always verify with HMRC at gov.uk or a qualified accountant before filing your Self Assessment return.

The Golden Rule: Wholly and Exclusively

HMRC allows a deduction only if the expense was incurred wholly and exclusively for the purpose of your trade. Mixed-use expenses (those with both business and personal elements) are generally not deductible — unless the expense has a clearly identifiable business portion that can be separated. Phone and internet bills are a common example where an apportionment is accepted.

Allowable Expense Checklist

Business Travel and Mileage

HMRC's approved mileage rates for using your own vehicle for business:

• Cars and vans: 45p per mile for the first 10,000 business miles; 25p per mile above 10,000 miles
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

Alternatively, claim actual vehicle running costs (fuel, insurance, servicing, road tax, MOT) multiplied by your business-use percentage. Keep a mileage log throughout the year. TaxSort's GPS tracker records every journey automatically with date, distance, and route — creating an HMRC-compliant log with zero manual effort.

Public transport fares, taxis, parking, and congestion charges for business trips are also allowable. Commuting to a regular fixed place of work is not deductible.

Office Costs

Stationery, postage, printer ink and paper, and small office equipment used exclusively for business are fully allowable. If you rent a dedicated office, the full rent and utilities are deductible.

Use of Home as Office

HMRC's simplified flat rate for home office use:

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

Alternatively, use the actual costs method: calculate the business proportion of total home costs (rent or mortgage interest, utilities, council tax, insurance) based on the number of rooms used for business and hours of business use. This typically yields a larger deduction but requires more detailed records.

Phone and Internet

The business-use proportion of your mobile phone plan and broadband is allowable. If you have a dedicated business phone or line, 100% is deductible. For mixed personal and business use, estimate the business percentage and apply it to the annual cost — HMRC accepts a reasonable apportionment backed by your usage pattern.

Staff Costs

If you employ staff or use subcontractors: wages, salaries, employer NICs, pension contributions, and payments to subcontractors are all allowable. Payments to yourself as the sole trader owner are not deductible — your profit after expenses is your effective pay.

Stock and Materials

Cost of goods purchased for resale, raw materials, and direct costs of delivering your service are allowable. Calculate closing stock at year end to ensure you only deduct cost of goods sold (not unsold stock still on hand).

Financial Costs

Bank charges on a business account, business loan interest (not capital repayments), and hire purchase finance charges are allowable. Personal bank charges are not. Keep business and personal accounts separate to simplify this.

Professional Fees

Accountancy fees, legal fees for business matters (drafting contracts, resolving commercial disputes), and professional indemnity insurance premiums are fully allowable. Legal fees relating to capital transactions (buying or selling a business asset) are not deductible as revenue expenses.

Training and Professional Development

Training costs are allowable when they update or improve existing skills used in your current trade. A graphic designer paying for a new design software course qualifies. Training to start a completely new profession does not. Professional membership fees for associations directly related to your current work are also allowable.

Marketing and Advertising

Website hosting, domain registration, online advertising (Google Ads, Meta Ads), business cards, flyers, and branded materials are all allowable. Client entertainment is not allowable under HMRC rules — unlike in the US and Canada, UK law does not permit deduction of business entertainment costs, including meals with clients.

Capital Allowances

Equipment, computers, machinery, and tools above the annual investment allowance are not deducted as running expenses. Instead, they are claimed as capital allowances. The Annual Investment Allowance (AIA) provides 100% first-year relief on qualifying expenditure up to £1 million. For most sole traders, this means capital equipment can be fully deducted in the year of purchase.

What You Cannot Claim

• Entertaining clients, suppliers, or prospects (meals, events, hospitality)
• Your own wages or drawings from the business
• Costs with a significant personal element that cannot be separated
• Fines, penalties, or illegal payments
• Clothing (except protective or specialist clothing required for your work — a suit does not qualify even if worn only for work)
• Commuting from home to a regular fixed place of work

The Trading Allowance

If your total self-employment income is £1,000 or less, you can use the trading allowance — you do not need to register for Self Assessment or report expenses. You simply deduct the full £1,000 allowance. If your income exceeds £1,000, you must register and report actual expenses using the methods above. You cannot claim both the trading allowance and actual expenses.

Frequently Asked Questions

Can I claim the cost of my laptop as a sole trader?

Yes, if the laptop is used wholly for business. If it has mixed personal and business use, you can claim the business-use proportion. Under Annual Investment Allowance, the full business cost can typically be deducted in the year of purchase.

Can I deduct my car purchase?

Not as a running expense. Cars above the emission threshold are claimed through capital allowances (Writing Down Allowance at 6% or 18% depending on CO₂ emissions) multiplied by your business-use percentage. Using the HMRC approved mileage rates is simpler and avoids this complexity for most sole traders.

Are HMRC mileage rates the same as the approved amounts for employees?

Yes — the same rates apply. Sole traders using the mileage method (45p/25p for cars) do not need to keep detailed fuel receipts or calculate actual costs. Simply log every business journey with date, destination, purpose, and miles driven.

How does TaxSort categorise UK expenses?

TaxSort maps every scanned receipt to the correct SA103F category — Office Costs, Travel, Premises, Legal and Financial, Marketing, Staff, and more. The mileage tracker uses HMRC approved rates automatically. At year end, export a complete SA103F-ready breakdown that your accountant can use directly or that you can enter into HMRC's online Self Assessment system.