Allowable Business Expenses for Sole Traders: Complete UK Guide 2026/27

Allowable expenses for sole traders can reduce taxable profit, but only when the costs meet HMRC’s rules and are supported by accurate records. Missing genuine business expenses may mean paying more tax than necessary, while claiming personal or unsupported costs can create problems if HMRC checks the return.

The key principle is that an expense must normally be incurred wholly and exclusively for the purposes of the trade. When a cost has both business and personal use, only the identifiable business part may be allowable.

This guide explains the main expense categories, mixed-use costs, simplified expenses and the records sole traders should keep for the 2026/27 tax year.

What are allowable expenses for sole traders?

Allowable expenses are business costs that can be deducted when calculating taxable trading profit. They do not usually produce a pound-for-pound tax refund. Instead, they reduce the profit on which Income Tax and relevant National Insurance are calculated.

For example, if a sole trader has £60,000 of sales and £15,000 of allowable expenses, the starting trading profit is £45,000 before any further tax adjustments or allowances.

The expense must relate to the business. Personal drawings, domestic spending and private purchases are not allowable merely because they were paid from the business bank account.

Common allowable expense categories

Depending on the type of business, allowable costs may include:

• Office supplies, stationery and business software
• Telephone and internet costs relating to the business
• Business travel and qualifying vehicle costs
• Stock, materials and goods bought for resale
• Business premises costs
• Staff wages and subcontractor costs
• Insurance, bank charges and professional fees
• Advertising, website and marketing expenditure
• Training connected with the existing trade
• Repairs and maintenance of business equipment

The precise treatment depends on the nature of the expense, how it is used and whether the business uses the cash basis or traditional accounting.

Office costs and business software

Everyday office costs can include stationery, postage, printer supplies and software subscriptions used for the trade. Bookkeeping, design, scheduling, cloud storage and industry-specific applications may all qualify when they are genuinely business-related.

If a subscription also provides personal benefits, identify and claim only the business proportion. Keep invoices showing the supplier, date and service provided.

Equipment such as computers may be treated differently from routine supplies, particularly under traditional accounting. The appropriate deduction may be through capital allowances rather than an ordinary expense.

Telephone and internet expenses

A separate business mobile contract is generally easier to support than a mixed personal contract. If one phone or broadband connection is used for both purposes, claim only a reasonable business share.

Do not claim the full household internet bill simply because some work is completed from home. The apportionment should reflect actual business use and exclude the private element.

Retain bills and document how the percentage was calculated. Consistent evidence is more reliable than choosing a rounded percentage without explanation.

Travel and vehicle expenses

Qualifying business travel may include journeys to customers, suppliers, temporary workplaces or training connected with the trade. Costs can include public transport, parking and accommodation for genuine business trips.

Ordinary travel between home and a permanent place of work is normally private commuting and is not generally allowable.

For vehicles, sole traders may use actual business costs or, where eligible, simplified mileage expenses. The best method depends on mileage, vehicle costs and how the vehicle is used.

Keep a mileage log showing the date, destination, purpose and business miles. A diary created at the time is stronger evidence than an estimate produced at year end.

Working from home

A sole trader who works from home may claim an appropriate share of household costs or use HMRC’s simplified-expense flat rates where eligible.

Actual-cost claims can consider relevant items such as heating, electricity, Council Tax, mortgage interest or rent, internet and insurance. The business portion should be calculated using a reasonable method, such as the number of rooms, time used and level of business use.

Simplified expenses use a flat rate based on monthly hours worked from home. They do not cover every cost; telephone and internet business use may still need a separate calculation.

A room used exclusively for business can create wider tax considerations when the property is sold. Mixed or occasional use may therefore be relevant when planning a claim.

Stock and materials

Goods bought for resale, raw materials and direct production supplies are normally relevant business costs. A maker may purchase clay, packaging and glaze, while a retailer may buy inventory from wholesalers.

Under traditional accounting, closing stock can affect the cost deducted for the year. Under the cash basis, the timing and treatment may differ.

Maintain purchase invoices and reliable stock records, particularly where products are lost, damaged, withdrawn for personal use or given away.

Staff and subcontractor costs

Allowable staffing costs can include wages, employer National Insurance, pension contributions and certain employee expenses. Payroll must be operated correctly where the worker is an employee.

Payments to genuine subcontractors may also be allowable. However, calling someone self-employed does not determine their employment status. The working arrangement must support the classification.

Construction businesses should also consider Construction Industry Scheme obligations when paying subcontractors.

Professional fees and insurance

Accountancy fees, business-related legal costs and professional subscriptions may be allowable when they relate directly to the trade. Professional indemnity, public liability and business-property insurance can also qualify.

Some legal costs are capital or personal rather than revenue expenses. Fees connected with buying a property, acquiring an enduring asset or dealing with a personal matter need separate review.

Fines and penalties for breaking the law are generally not allowable, even if the event occurred during business activity.

Advertising and marketing

Advertising costs can include website hosting, online adverts, printed leaflets, directory listings, photography and promotional campaigns.

Business gifts have specific rules. Gifts of food, drink, tobacco or vouchers are generally restricted, and prominent advertising or value conditions may apply to other promotional items.

Entertainment of customers and suppliers is usually not deductible for Income Tax, even when there is a clear commercial reason for the meeting.

Training and development

Training that updates or improves skills used in the existing business may be allowable. Examples include refresher courses, software training or industry updates connected with current work.

Training that gives the trader an entirely new trade or profession is less likely to qualify as a routine expense. The distinction depends on what the business already does and what the course enables the person to do.

Keep the course description and invoice to show the connection with the existing trade.

Clothing expenses

Everyday clothing is normally private, even when it is purchased only for work. A suit, shoes or ordinary coat generally remains suitable for personal use.

Allowable clothing can include protective equipment, uniforms and costumes used by entertainers. Branding alone does not automatically make every item allowable, so consider the nature and use of the clothing.

Food and subsistence

Ordinary meals are a personal cost. Limited subsistence expenses may be allowable when qualifying business travel requires the trader to work away from the normal pattern or stay overnight.

Buying lunch while working at the usual premises does not generally become a business expense simply because the meal is eaten during working hours.

Receipts should show the date, amount and context of any claimed travel-related subsistence.

Finance costs and bank charges

Business bank charges, card-processing fees and interest on borrowing used for the trade may be allowable. The purpose of the borrowing matters more than the name of the account.

Repaying the capital element of a loan is not normally an expense. The interest and qualifying fees may be treated separately.

If borrowing funds both business and personal spending, calculate the business element carefully.

Bad debts

A customer debt that cannot be recovered may sometimes be deductible, depending on the accounting method and whether the income was previously recognised.

Under the cash basis, unpaid sales are generally not recorded as income until received, so a separate bad-debt deduction may not arise.

Evidence of collection attempts and the reason the amount is irrecoverable should be retained.

Capital expenditure and capital allowances

Large assets or items providing a lasting benefit may be capital expenditure rather than ordinary running costs. Examples can include machinery, equipment and certain vehicles.

Capital allowances may provide tax relief for qualifying expenditure. Under the cash basis, many equipment purchases may be deducted differently, although cars remain subject to specific rules.

Do not categorise every large purchase as an ordinary expense without considering the correct treatment.

Mixed business and personal costs

Where a cost has a clear business and private element, claim only the business part. Common examples include mobile phones, vehicles, home internet and household costs.

The calculation should be reasonable, consistent and based on evidence. Keep a short note explaining the method so it can be understood later.

If the business element cannot be separated from the private purpose, the whole cost may be disallowed.

Expenses that are commonly disallowed

• Personal drawings and household spending
• Ordinary commuting
• Everyday clothing
• Customer entertainment
• Most fines and penalties
• Personal tax and National Insurance payments
• Private portions of mixed-use bills
• Loan capital repayments
• Costs unrelated to the trade

Paying a cost from a business account does not determine whether it is allowable. The purpose and tax rules determine the treatment.

What records should sole traders keep?

Keep sales invoices, purchase invoices, receipts, bank statements, mileage logs and calculations supporting any apportionments. Digital copies can be used where they remain complete, readable and secure.

Records should identify what was purchased, when, how much was paid and why it related to the business. A bank entry alone may not show enough detail to support a claim.

Regular bookkeeping prevents receipts from being lost and makes tax-return preparation more accurate.

A practical monthly expenses routine

1. Upload receipts and supplier invoices promptly.
2. Separate personal spending from business costs.
3. Reconcile bank and card accounts.
4. Review uncategorised transactions.
5. Update mileage and working-from-home records.
6. Check large purchases for capital treatment.
7. Review the expected profit and tax provision.

Completing these steps each month is far easier than rebuilding a full year of expenses immediately before the tax-return deadline.

Support with sole-trader expenses

Claiming the correct expenses requires reliable records and an understanding of how each cost relates to the trade. The goal is to claim every legitimate deduction without including unsupported personal spending.

Real Key Accountancy helps sole traders organise bookkeeping, review allowable expenses and prepare accurate tax information.

For help reviewing your records and expense claims, contact Real Key Accountancy.

Frequently asked questions

Can a sole trader claim accountancy fees?

Business-related accountancy fees can generally be allowable, although fees relating to personal matters may need to be excluded.

Can I claim the full cost of my mobile phone?

You can claim the business element. A mixed personal and business contract should be apportioned reasonably.

Can I claim meals while working?

Ordinary meals are normally personal. Limited subsistence costs may qualify when connected with eligible business travel.

Do I need a receipt for every expense?

You should retain appropriate evidence. A receipt or invoice usually provides stronger support than a bank transaction alone.

Do allowable expenses reduce tax directly?

They normally reduce taxable profit rather than reducing the tax bill pound for pound.

This article provides general information rather than personalised tax advice. Expense treatment depends on the facts and accounting method, so obtain advice based on your business.