Part of our complete guide to small business numbers.
The core test
For a cost to be an allowable expense, it must be incurred "wholly and exclusively" for your business. Where a cost has both a business and personal element, your phone bill, your car, your home, you can only claim the business-use portion, apportioned on a reasonable and consistent basis.
The main categories
- Office costs: stationery, phone and internet bills (business proportion), software subscriptions, printing
- Travel costs: fuel, parking, train and bus fares for business journeys, vehicle insurance and repairs (business proportion if the vehicle is also used personally)
- Premises costs: rent, business rates, utility bills, insurance for business premises, or a reasonable proportion of home costs if you work from home
- Stock and materials: goods bought for resale, raw materials, direct costs of producing what you sell
- Staff costs: salaries, employer National Insurance, pension contributions, subcontractor payments
- Professional fees: accountancy, legal fees relating to the business, business insurance
- Marketing: website costs, advertising, free samples
- Training: courses directly improving skills relevant to your existing trade, not training for a completely new, unrelated skillset
Key point: Everyday clothing isn't an allowable expense, even if you genuinely only wear it for work, HMRC treats ordinary clothes as inherently having a personal benefit. Only specific protective clothing or a recognisable uniform, not a smart outfit you happen to wear to meet clients, qualifies.
Simplified expenses: the shortcut worth knowing about
Instead of tracking actual costs and apportioning business use, HMRC's simplified expenses scheme lets you apply flat rates for certain costs, business mileage in your own vehicle and working from home are the two most commonly used. This isn't always the more generous option, but for straightforward situations it saves a lot of record-keeping effort, worth comparing against the actual-cost method to see which gives a better result for you.
Costs that are commonly missed
- Bank charges and interest on business borrowing, often overlooked if they're small individually but add up over a year
- Pre-trading expenses, costs incurred up to seven years before you started trading can sometimes still be claimed in your first year
- Subscriptions to trade bodies or professional organisations relevant to your business
Not sure what you're missing? Book a free consultation and we'll go through your specific expenses as part of our Self Assessment service.
Frequently asked questions
What makes an expense allowable for a sole trader?
An expense must be incurred wholly and exclusively for the purposes of your business. Costs with any significant personal element need to be apportioned, only the business-use portion is deductible.
Can sole traders use simplified expenses?
Yes, HMRC's simplified expenses scheme lets you use flat rates for things like business mileage and working from home, instead of calculating actual costs and apportioning them, which is often quicker for straightforward situations.
Can I claim for clothing as a sole trader?
Only specific protective or uniform clothing, everyday clothing isn't allowable even if you only wear it for work, since HMRC treats ordinary clothing as having an inherent personal benefit regardless of intent.
What happens if I claim an expense that isn't actually allowable?
If HMRC challenges it and disallows it, you'll owe the extra tax due, plus potentially interest and a penalty, so it's worth checking anything borderline before including it on your return.