Allowed Expenses For Self-Employed and Sole Trade Business

One of the most common questions we hear from people who are self-employed or running a sole trade is:

“What expenses can I claim against my business income?”

The answer is not simply “anything you spend on your business”.

The basic principle is important: an expense generally needs to be incurred wholly and exclusively for the purposes of the business. Where something is used partly for business and partly personally, usually only the identifiable business proportion can be claimed.

So what does this mean in real life?

There can be many different types of allowable business expenses, including:

• Office costs – stationery, printer supplies or business software.

• Telephone and internet – the business proportion of your phone or internet costs.

• Advertising and marketing – website costs, online advertising or printed promotional material.

• Professional fees – fees for accounting, legal or other professional services relating to the business.

• Insurance – business insurance or professional indemnity insurance.

• Bank charges – business bank fees and certain financial costs.

• Stock and materials – goods or materials bought for resale or used to provide your services.

• Equipment – computers, machinery and other equipment used in the business, subject to the relevant tax rules.

• Training – training that is relevant to your existing business activities.

• Travel – business train, bus, taxi or other qualifying travel.

• Accommodation – hotel costs when travelling on qualifying business trips.

• Business meals – certain meal costs connected with qualifying business travel.

• Parking – parking costs incurred on a qualifying business journey.

• Vehicle costs – depending on how the vehicle is treated for tax purposes.

• Premises costs – rent, business rates, heating and lighting for business premises.

• Repairs and maintenance – repairs to business equipment or premises.

• Subscriptions – relevant business publications, software or professional subscriptions.

• Subcontractors – payments to people you engage to carry out work for the business.

• Staff costs – qualifying wages and employment-related costs.

• Postage and delivery – postage, courier and delivery costs relating to the business.

This is not an exhaustive list. The important question is not simply “Did I spend the money?” but “Why was the money spent, and was it for the business?”

What about costs that are partly personal?

This is where things become more interesting.

Suppose your mobile phone costs £600 for the year. If £400 relates to business use and £200 relates to personal use, you cannot simply put the whole £600 through the business. You need to identify the business element.

The same principle can apply to household costs, internet, utilities, vehicles and other shared expenses.

Your home can be a business expense

If you work from home, you may be able to claim an appropriate proportion of costs such as electricity, heating, Council Tax, rent, mortgage interest, internet and telephone use.

For example, if you use one room as an office, you may need to consider the number of rooms, the amount of time the room is used for business and other relevant factors when calculating the business proportion.

There are also simplified expenses for working from home, which can make the calculation easier in qualifying circumstances.

So ask yourself:

Do I work from home regularly?

Am I paying household costs that partly relate to my business?

It may be worth looking at the rules rather than assuming that none of these costs can be claimed.

What about your car?

Cars are one of the areas where sole traders need to be particularly careful.

Can you put fuel, insurance, repairs, servicing, vehicle tax, parking and other running costs through your sole trade?

Potentially, yes — but the treatment depends on how you calculate your vehicle expenses and whether the journeys are genuinely business journeys.

You generally cannot claim private journeys or ordinary travel between your home and your normal place of work.

There are two broad approaches for a qualifying vehicle: you can calculate the business proportion of actual costs, or you may be able to use the simplified mileage method.

For 2026/27, the simplified mileage rate for cars and goods vehicles is 55p per business mile for the first 10,000 miles and 25p for each additional business mile.

For example, 8,000 qualifying business miles could produce a mileage deduction of £4,400.

If you use the mileage method for a vehicle, you cannot also claim the actual fuel, insurance, repairs and depreciation costs for that same vehicle.

What if the car belongs to the business?

This is where the calculation can become considerably more complicated.

A sole trader may claim capital allowances on a car used in the business, subject to the relevant rules. The running costs can also be relevant, but where the car is used privately, the business element needs to be identified.

For example, if a car is used 70% for business and 30% privately, the tax treatment needs to reflect that private use.

Electric and lower-emission cars can also have different tax treatment under the capital allowances and company car rules.

But what about Benefits in Kind?

This is an important distinction.

A Benefit in Kind (BIK) is particularly relevant where a company provides an employee or director with something that can also be used personally, such as a company car.

For a company car, the taxable benefit is generally calculated using the car's tax value and an appropriate percentage linked to factors including its CO2 emissions and, for some cars, electric range. The percentage can therefore affect how much tax is ultimately paid.

This means the environmental characteristics of a company car can have a real effect on its tax treatment.

For example, a fully electric company car and a higher-emission petrol car can produce very different taxable benefit calculations.

This area can have a much bigger impact on your income tax position than someone might expect, particularly where an expensive vehicle is involved.

So before buying a car through a company or deciding how to treat a vehicle, it is worth doing the numbers.

Mileage is different

If you use your personal car for qualifying business journeys, mileage may provide a simpler way of calculating the deduction.

Keep proper records of your business journeys, including dates, destinations and mileage.

Do not simply estimate the number at the end of the year.

Good records can make the difference between a calculation that can be supported and one that becomes difficult to explain.

What about the £1,000 trading allowance?

There is another option that some people may be able to use: the £1,000 trading allowance.

Instead of calculating actual allowable expenses, eligible individuals with trading income can potentially deduct up to £1,000 under the trading allowance rules.

But you cannot normally claim the £1,000 trading allowance and claim your actual business expenses for the same income.

For someone with very low expenses, the allowance may be worth considering. If your genuine business expenses are much higher, calculating the actual expenses may produce a different result.

This is another area where doing the calculation matters.

And what happens when the business grows?

There is also an important VAT point.

If your taxable turnover goes over the current £90,000 VAT registration threshold, you may need to register for VAT. This applies to sole traders as well as other types of businesses; being a sole trader does not mean VAT rules disappear.

VAT registration brings another layer of record keeping and tax considerations.

Sole trader, partnership or limited company?

As a business grows, you may also start asking:

“Should I remain a sole trader, or should I consider a limited company?”

This is not simply an expenses question.

A limited company is legally separate from you. Company assets, company expenses, personal expenses, salary, dividends and Benefits in Kind can therefore create a different tax and accounting picture.

But it would be wrong to assume that a limited company can simply put personal expenditure through the business. The business-purpose rules still matter.

Partnerships have their own rules too, and the treatment can depend on the type of partnership and the particular expense.

Sometimes the difference between personal and business expenditure is obvious. Sometimes it is not.

That is especially true when you are a one-person business and the same bank account, car, phone, home and computer may be used for both business and personal purposes.

This is why keeping good records and asking questions early is so important.

If you are unsure whether an expense is allowable, don't guess.

Talk to us. We are happy to have a look at your circumstances and help you understand how the rules may apply to you.

Not sure? No problem. We can have a look for you.

Tax rules can change and individual circumstances matter. This article is intended as general information and should not be treated as personalised tax advice.

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