Allowable Expenses Explained

As a sole trader you pay Income Tax on your profit, not your turnover. "Allowable expenses" are the business costs HMRC lets you deduct before working out that profit — so claiming the right ones legitimately lowers your tax bill. The categories below mirror the ones on your tax return.

The main expense categories

• Office costs — stationery, postage, software, the business share of phone & broadband.
• Travel — business mileage, public transport, parking, and accommodation on business trips.
• Clothing — uniforms and protective clothing only (not everyday clothes).
• Staff costs — wages, subcontractor costs and employer National Insurance.
• Cost of goods — stock for resale and raw materials.
• Financial costs — bank charges, business loan interest and business insurance.
• Premises costs — rent, business rates, utilities, and use of your home for business.
• Advertising & marketing — website, online ads, business cards and samples.
• Training — courses that update the skills you use in your existing trade.
• Professional fees — accountant, solicitor and professional indemnity insurance.
• Capital allowances — equipment, tools and vehicles, claimed through the capital-allowances rules.

Two costs worth knowing

Mileage: instead of working out actual car running costs you can claim a flat rate per business mile — 45p for the first 10,000 miles in the year, then 25p. Working from home: you can use HMRC's simplified flat rate based on the hours you work at home each month, or claim a fair business-use share of your actual home costs.

Most small sole traders use the cash basis — recording income and expenses when money actually moves — which keeps things simple. Whichever basis you use, keep your receipts and a tidy digital record so every legitimate claim is captured.

Based on official HMRC and gov.uk guidance on expenses if you're self-employed. General information, not tax advice — rules can vary by circumstance, so check with an accountant.

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