Allowable Expenses for Sole Traders (2026/27)

What a deduction is actually worth to you

Every £1 of allowable expense you claim cuts your taxable profit by £1. What that saves you is your marginal rateThe rate of tax on your next pound of income - your Income Tax band plus, for the self-employed, Class 4 National Insurance. It is what a £1 deduction actually saves you. - your Income Tax rate plus the Class 4 National InsuranceClass 4 National Insurance: National Insurance paid by the self-employed on their profits, on top of Income Tax. For 2026/27 it is 6% on profits between £12,570 and £50,270, and 2% above that. you pay on profit. So an expense is best thought of not as money you recover, but as a cost the taxman shares with you. How big his share is depends on where your profit sits, and on whether you pay Scottish or rest-of-UK Income Tax. For 2026/27:

• Most sole traders pay basic-rate Income Tax (20%) and Class 4 NI (6%), so £100 of expenses saves £26.
• In the rest-of-UK higher-rate band (profit over £50,270) it is 40% + 2% = £42 per £100.
• A Scottish trader earning between £43,662 and £50,270 saves £48 per £100. The Scottish higher rate of 42% starts well below the £50,270 point where Class 4 NI drops to 2%, so this is the highest-relief band for the self-employed anywhere in the UK.
• In the £100,000 to £125,140 band, where the Personal AllowanceThe amount of income you can earn each year before income tax. It is £12,570 for 2026/27, tapering away by £1 for every £2 of income over £100,000. is withdrawn, £100 of expenses saves about £62 in the rest of the UK and about £70 in Scotland - because cutting your profit there also hands back some tax-free allowance.

This is why the same receipt is worth nearly three times as much to one trader as another, and why keeping good records matters most when your profit is high. To see what a specific expense saves on your own profit and region, use the Self-Employed Tax Calculator.

Cash basis or traditional accounting? The default changed in 2024/25

Before you decide what to claim, you need to know when you can claim it - and that depends on your accounting method. Since 6 April 2024, cash basisThe default way sole traders record income and expenses since 6 April 2024: you count money when it is actually received or paid, not when invoiced. Traditional accruals accounting is the alternative. has been the default for sole traders. Under cash basis you record income and expenses only when money actually changes hands - you claim an expense in the year you pay it, not the year you are billed. Before 2024/25 cash basis was an opt-in scheme you could only use if turnover was £150,000 or less; now any sole trader can use it.

The method changes what counts as an expense:

• Under cash basis, most equipment you buy and keep (computers, tools, machinery) is a normal allowable expense - you do not route it through capital allowancesTax relief for assets you buy and keep for the business, such as cars or equipment. The Annual Investment Allowance lets most businesses deduct the full cost in the year of purchase.. Cars are the exception (see below).
• Interest and bank charges on business borrowing are allowable.
• You would choose traditional (accruals) accounting instead - recording income and costs by invoice date - if your business carries significant stock, or if you need formal accounts to raise finance. You tell HMRC which you used on your Self AssessmentHMRC's system for reporting income and gains not taxed at source. The online return and payment deadline is 31 January after the tax year ends. return.

The rule everything hangs on: wholly and exclusively

Whatever your method, every expense must pass one test: it must be incurred wholly and exclusivelyThe core test for a business expense: it must be incurred only for the purposes of your trade. A cost that also serves a private purpose and cannot be split is disallowed (HMRC manual BIM37000). for your trade (HMRC manual BIM37000). If a cost serves both your business and your private life and the two cannot be separated, it is disallowed outright - the "dual purpose" trap. The classic example is an everyday suit worn to client meetings: because it also provides ordinary warmth and decency, none of it is claimable.

The practical escape is apportionment. Where a cost has an identifiable business share, you claim that share. A mobile phone or broadband bill is the everyday case: work out the business proportion of your use and claim that - HMRC expects you to keep the basis you used. (Phone and internet are specifically not covered by the working-from-home flat rate below, so you claim their business share separately.)

What you can and cannot claim

The everyday categories, once a cost passes the wholly-and-exclusively test:

• Office and admin: stationery, postage, printing, software, the business share of phone and internet.
• Marketing: website hosting, domain names, advertising.
• Financial: professional indemnity insurance, business bank charges, accountancy fees.
• Staff: employee wages, employer pension contributions.
• Stock: goods bought to sell on, and raw materials.
• Business travel: train, bus, taxi or air fares for journeys that are not your ordinary commute, plus parking.

And the costs that catch people out, because they feel like business but are specifically disallowed:

• Everyday clothing - even a suit bought only for work (the dual-purpose rule; settled in Mallalieu v Drummond). Only genuine protective gear or a branded uniform qualifies.
• Client entertainment - lunches, coffees and events are never deductible.
• Commuting between home and a regular workplace.
• Fines, such as parking or speeding penalties incurred while working.

Working from home and your vehicle: flat rate or actual cost?

For home and vehicle running costs you can use HMRC's simplified expenses flat rates instead of working out actual costs. They save record-keeping, but they often under-claim - so treat them as a floor, not the answer.

Working from home is a flat monthly rate based on hours worked there: £10 a month for 25 to 50 hours, £18 for 51 to 100, and £26 for 101 or more - at most £312 a year. If you have a dedicated room and high energy bills, the actual-cost method (a fair proportion of heat, light, council tax and so on) can be worth far more.

Vehicle mileage is 55p a mile for the first 10,000 business miles and 25p after that (24p for motorcycles) for 2026/27 - the first-10,000 rate rose from 45p on 6 April 2026. There is a catch worth deciding before you start: once you use the flat mileage rate for a vehicle, you must keep using it for that vehicle, and you cannot also claim capital allowancesTax relief for assets you buy and keep for the business, such as cars or equipment. The Annual Investment Allowance lets most businesses deduct the full cost in the year of purchase. on it. For a cheap-to-run, high-mileage car the flat rate usually wins; for an expensive vehicle, actual costs plus capital allowances may beat it.

gov.uk's own simplified expenses checker compares the flat-rate and actual-cost amounts for you. What it does not tell you is what either is worth in pounds - for that, multiply the deduction by your marginal rate from the first section.

The £1,000 trading allowance: claim it or your expenses, not both

Every sole trader gets a £1,000 trading allowanceA £1,000 tax-free allowance for casual or self-employed income. You can earn up to £1,000 before declaring, or deduct the flat £1,000 instead of your actual expenses - not both., and it is an either/or choice: you deduct the flat £1,000, or your actual expenses - never both. The decision is simple once you frame it as a breakeven. If your total allowable expenses for the year are under £1,000, claim the allowance: it is a bigger deduction and needs no records. If they are over £1,000, claim actual expenses. If your income for the year is under £1,000 you may not need to register or file at all. This matters most for side businesses - see the guide to being employed and self-employed at the same time.

Two claims people miss

• Pre-trading expenses. Costs you paid in the run-up to starting - up to 7 years before - that would have been allowable once you traded are treated as incurred on your first day of trading, and claimed then. Stock, equipment, a website and professional fees from before launch all commonly qualify.
• Digital record-keeping is coming. Making Tax DigitalMaking Tax Digital: HMRC's move to digital record-keeping and quarterly updates. For Income Tax it applies to sole traders and landlords with income above set thresholds. for Income Tax begins phasing in from April 2026; if it applies to you, you will need to keep expense records digitally and report quarterly. The thresholds and timing are in the Making Tax Digital for Income Tax guide.

Once you know what you can claim, the Self-Employed Tax Calculator shows how your expenses feed through to your Income Tax and Class 4 NI, and the Self Assessment guide covers how much to set aside. This guide explains the mechanics of allowable expenses; it is not personal tax advice, and a complex case is worth an accountant's eye.