The short answer
You can deduct costs you incur wholly and exclusively for your business. They come off your turnover before tax is worked out, so a basic-rate sole trader saves about 26p in Income Tax and Class 4 NI for every £1 of expenses, and a higher-rate one about 42p.
- Office, phone and software£1,200
- 3,000 business miles at 45p£1,350
- Marketing£600
- Insurance and accountancy£300
- Working from home, 51 to 100 hours a month£216
The wholly and exclusively test
An expense is allowable if it is incurred wholly and exclusively for the purposes of your trade. In practice that means two questions:
- Is it for the business? Stock, tools, software, insurance and advertising clearly are.
- Is there any private benefit? If a cost is partly personal, like a phone, broadband or a car, you can usually claim the business share, as long as you can identify it.
Some costs fail the test even though they help you work, because they meet a personal need too. Everyday clothing is the classic example: a suit you only wear to meetings still keeps you warm and decent, so it is not allowable.
What you can claim
| Category | Examples |
|---|---|
| Office and admin | Stationery, printing, postage, phone, broadband, software subscriptions, computer accessories |
| Travel | Business mileage, train and bus fares, parking, tolls, hotels and meals on overnight business trips |
| Stock and materials | Goods to resell, raw materials, direct costs of producing goods |
| Premises | Rent, business rates, utilities, insurance and repairs for business premises |
| Staff | Wages, employer National Insurance and pension contributions, subcontractor payments |
| Professional costs | Accountant, solicitor and surveyor fees; professional indemnity insurance |
| Finance | Bank charges, card processing fees, interest on business loans |
| Marketing | Advertising, website costs, leaflets, free samples |
| Training | Courses that update the skills you use in your current business |
| Clothing | Uniforms, protective clothing and costumes for performers |
Professional subscriptions to bodies on HMRC’s approved list, trade journals and small tools are also allowable. The calculator groups these under “other business costs”.
What you cannot claim
- Your own pay. Money you take out of the business, called drawings, is not an expense.
- Commuting between home and a permanent business base that is not your home.
- Client entertainment, such as meals, drinks or event tickets for customers.
- Everyday clothing, haircuts and personal grooming.
- Fines and penalties, including parking fines and HMRC penalties.
- Loan repayments: only the interest is allowable, not the capital.
- Training for a new skill unrelated to your current business.
- Your own Income Tax and National Insurance.
Food and drink
Your lunch on a normal working day is not allowable. Reasonable meals while travelling away from your usual base on business, or staying overnight, usually are.
Working from home
If you run your business from home, you have two ways to claim part of your household costs:
- 25 to 50 hours a month
- £10 a month
- 51 to 100 hours a month
- £18 a month
- 101 hours or more
- £26 a month
- Records
- Hours worked at home
- What
- Heating, electricity, broadband, council tax, rent or mortgage interest
- Split by
- Rooms used and time used for work
- Records
- Bills and your workings
- Best for
- Larger homes and longer hours
The flat rate does not cover phone and broadband, which you can claim separately for their business share. A full year at 101 hours or more a month gives £312. If you have a dedicated office and high bills, a share of actual costs is often worth more, but keep careful workings in case HMRC asks.
Watch out for business rates and Capital Gains Tax
Using part of your home only for business can, in some cases, bring business rates or a small Capital Gains Tax charge when you sell. Using a room for business and private purposes avoids both.
Vehicles and travel
For a car, van or motorcycle you choose between the HMRC mileage rates and the business share of actual running costs. The mileage rate for cars and vans is 45p a mile for the first 10,000 business miles in the tax year and 25p after that.
Once you use the mileage rate for a vehicle you must stick with it for as long as you use that vehicle in the business. Parking and tolls for business journeys can be claimed on top either way. The business mileage calculator works out the claim and the tax it saves.
Other business travel, such as train fares, taxis to a client and hotels on a business trip, is claimed at cost.
Equipment and big purchases
A laptop, tools or a van last for years, so they are capital purchases. How you claim depends on your accounting method:
- Cash basis, which most sole traders now use: you can usually deduct the cost as an expense in the year you pay for it. Cars are the exception and go through capital allowances.
- Traditional accounting: you claim capital allowances instead. The Annual Investment Allowance gives a 100% deduction in the year of purchase for most equipment, up to £1 million a year.
If the item is used privately too, claim only the business share. When you sell it or stop using it for the business, you may need to add some of the value back.
What an expense is worth
An expense saves your marginal rate of tax and National Insurance, the rate on the top slice of your profit. Here is what £1,000 of expenses saves at different profit levels.
Below the £12,570 Personal Allowance, expenses save no tax this year, though they can create a loss you may be able to use. Between £100,000 and £125,140, each £1,000 of expenses saves £620, because it also restores part of your Personal Allowance.
Do not spend just to save tax
An expense of £1,000 still costs you £740 after tax relief at the basic rate. Only spend on things the business needs.
Expenses or the trading allowance?
Instead of claiming actual expenses, you can deduct a flat £1,000 trading allowance. You cannot do both. The allowance is better if your real costs are under £1,000, which is common for small side businesses.
- Tax claiming £350 of expenses£730
- Tax claiming the £1,000 allowance£600
If your turnover is £1,000 or less, the allowance covers all of it: no tax, and no need to register for Self Assessment for that income.
Two worked examples
A freelance designer
Turnover of £55,000. Software and equipment £1,800, professional insurance and accountancy £900, marketing £1,200, a course £400, 1,500 business miles and over 100 hours a month working from home.
- Itemised costs£4,300
- Mileage: 1,500 × 45p£675
- Working from home: 12 × £26£312
- Total expenses£5,287
The saving is more than 26% because the expenses bring profit from above £50,270 down below it, so part of them saves tax at 42%.
A plumber
Turnover of £65,000. Parts and materials £14,000, insurance and accountancy £1,600, workwear £250, phone and software £700, and 12,000 business miles in a van on the mileage rate.
- Itemised costs£16,550
- Mileage: 10,000 × 45p + 2,000 × 25p£5,000
- Total expenses£21,550
Records and receipts
Keep a record of every expense: receipts, invoices, bank statements and, for mileage and home working, a log of miles and hours. Digital copies are fine.
- Keep records for at least five years after the 31 January filing deadline for the year.
- Note the business reason for anything that could look personal.
- For part-business costs, write down how you worked out the business share.
- If you are within Making Tax Digital, from April 2026 for income over £50,000, your records must be kept in compatible software.
Staff, family and subcontractors
Wages you pay to employees are allowable, together with employer National Insurance and any workplace pension contributions you make for them. Payments to freelancers and subcontractors for work on your business are allowable too.
You can employ a family member, but the pay must be for real work and at a rate you would pay anyone else for the same job. Paying a partner or child more than the work is worth, simply to use their tax-free allowance, is the kind of claim HMRC looks at closely. Keep timesheets and run payroll properly if you pay them as an employee.
When an expense counts
Under the cash basis, the default for sole traders since April 2024, an expense counts in the tax year you pay it. A software subscription paid on 1 April 2027 counts in 2026/27; paid on 10 April, it falls into 2027/28.
Under traditional accounting, an expense counts in the period it relates to, whenever you pay it. Stock is only deducted when it is sold, and unpaid bills at the year end are still included.
The cash basis is simpler and suits most small businesses. Traditional accounting can suit businesses with large amounts of stock or long credit terms, and you can opt into it on your tax return.
If you run a limited company
The same broad test applies to a limited company, but the expenses belong to the company and reduce its Corporation Tax rather than your own Income Tax. There are some differences:
- the company cannot use the simplified flat rates for working from home or vehicle costs;
- it can pay you a tax-free £6 a week for working from home without receipts, or more with evidence of extra costs;
- it can pay you the approved mileage rates tax-free for business journeys in your own car;
- a director’s salary and employer pension contributions are company expenses.
See the Corporation Tax calculator for what company expenses save.