UK Self Assessment From Scratch — Part 4: Allowable Expenses for the Self-Employed

Quick answer

The HMRC test for an allowable expense: wholly and exclusively for the purposes of the trade. Personal use of the same thing? Then either:

• Claim only the business portion (mixed-use items: phone, broadband, car).
• Don't claim it at all.

The main categories sole traders claim:

1. Office/work-from-home costs (rent, utilities, broadband).
2. Travel (mileage, public transport, parking — not commuting).
3. Supplies and stock (materials, software subscriptions).
4. Professional fees (accountant, legal, subscriptions to professional bodies).
5. Marketing (website, advertising, business cards).
6. Capital items (laptop, equipment) — via capital allowances or AIA.
7. Pension contributions — but as relief, not business expense.

This is Part 4 of 8 in our Self-Assessment From Scratch series.

The £1,000 trading allowance

For small-scale self-employment, the simplest option:

• Earned £1,000 or less from self-employment in the tax year? No return needed.
• Earned £1,000 to £2,500? You can use the trading allowance — deduct £1,000 flat and don't itemise.
• Earned over £2,500? Trading allowance still available but usually you'd do better itemising.

You can't use the trading allowance AND claim actual expenses for the same business. Choose one or the other.

For multiple income sources, the £1,000 applies to total trading income across all sole-trader activities combined, not per source.

Home office expenses

If you work from home — whether full-time or for part of your work — you can claim a contribution to household costs. Two methods:

Simplified expenses (HMRC flat rates)

So a full-time home-based sole trader claims £26 × 12 = £312/year. Simple, no records needed.

Proportional method (often better for higher-cost homes)

Calculate the proportion of your home used for business — typically:

• One dedicated office room out of 5 rooms = 20%.
• Used 8 hours/day, 5 days/week (~24% of the week).
• Combined apportionment: 20% × 24% ≈ 5% business use.

Apply that percentage to:

• Council tax (or rates in NI).
• Utilities (gas, electric, water).
• Insurance (home insurance, contents).
• Broadband (if also business use; usually a flat business %).
• Mortgage interest (NOT capital repayment) — careful, this can affect CGT on sale.
• Rent (if you rent).

Avoid 100% dedication of a room — if you use a room exclusively for business, you may trigger a partial CGT charge when you sell your home (loss of main residence relief on that portion). The standard advice: ensure the room has incidental personal use too.

Worked example — Jess, freelance designer at home

Jess's home:

• 4-bed semi in Manchester (4 rooms total used as living space).
• Spare bedroom used as office, 35 hrs/week.
• Total household bills: £6,000/year (council tax £2,000, utilities £2,800, broadband £600, insurance £400, mortgage interest £6,000).
• Excluding mortgage interest for CGT-safety: £6,000.

Method 1 — Simplified flat rate: £26 × 12 = £312

Method 2 — Proportional (25% of room space × 50% time use = 12.5%): £6,000 × 12.5% = £750

Jess uses the proportional method. £438/year extra deduction compared with simplified.

Travel expenses

What you CAN claim

• Business mileage in your own vehicle: 45p/mile (first 10,000 miles/yr), 25p/mile thereafter.
• Public transport for business trips (train, bus, taxi to client meeting).
• Parking at client sites.
• Hotels on business trips.
• Subsistence (meals away from your normal workplace, reasonable cost).
• Tolls and congestion charges on business journeys.

What you CANNOT claim

• Ordinary commuting to a regular workplace (even if you work from multiple sites for the same client).
• Personal travel mixed into a business trip.
• Travel to set up the business before you started trading.
• Speeding tickets and parking fines.

Mileage allowance details

The 45p/25p rates are a combined allowance for:

• Fuel.
• Vehicle depreciation.
• Insurance, MOT, servicing.
• Repairs and tyres.

You can't separately claim any of these on top of mileage. Choose one method per vehicle per tax year.

Alternative: actual costs method — track all vehicle costs and apportion by business mileage %. Usually worse than 45p/mile unless you drive an unusually expensive vehicle.

Worked example — Tom, plumber

Tom drives 18,000 business miles in 2025/26:

• First 10,000 miles × 45p = £4,500
• Next 8,000 miles × 25p = £2,000
• Total mileage claim: £6,500

He keeps a simple mileage log: date, from-to, miles, purpose. HMRC accepts paper logs, app-tracked logs, or spreadsheets — just keep them.

Phone and broadband

For mixed personal/business use:

• Mobile phone: apportion by business % (e.g. 60% business → 60% of the bill).
• Broadband: typically 25-50% business use unless work is web-intensive (then up to 80%).
• Landline: apportion similarly.

If you have a separate business phone/contract, 100% deductible.

Supplies and consumables

Common deductions:

• Software subscriptions (Office 365, Adobe Creative Cloud, Xero accounting, etc.).
• Stationery, printer ink, paper.
• Stock and raw materials for trading.
• Tools for trades (toolbox, drill bits, fixings).
• Postage and packaging for product businesses.
• Cleaning of business premises.

Professional fees

• Accountant fees for preparing your business accounts and Self Assessment.
• Solicitor fees for business legal work (not personal).
• Subscriptions to approved professional bodies (HMRC List 3) — chartered accountants, surveyors, lawyers, engineers, doctors, etc.
• Trade body memberships (if relevant to your trade).

Marketing and advertising

• Website hosting and domain costs.
• Pay-per-click advertising (Google Ads, Meta Ads).
• Business cards and printed marketing.
• Networking event fees.
• PR/social media management services.

Capital expenditure — laptops, machinery, vehicles

Items you'll use for more than a year are capital, not revenue, and claimed via:

Annual Investment Allowance (AIA)

For 2025/26: £1,000,000 per tax year. For most sole traders this is unlimited in practice — claim the full cost of a laptop, machinery, tools, etc. in the year of purchase.

Cars — special rules

Cars cannot use AIA. Instead:

• Cars with CO2 ≤ 50g/km (mainly EVs): 100% First Year Allowance — full deduction in year of purchase.
• Cars 51-110 g/km: 18% writing-down allowance per year (special rate pool — actually main pool from April 2021).
• Cars over 110g/km: 6% writing-down allowance (special rate pool).

For most sole traders, the mileage allowance method (45p/mile) is simpler and usually equivalent or better than capital allowances on a car.

Worked example — Sarah, freelance writer

Sarah buys a £1,400 laptop and £600 desk for her home office in November 2025.

• Both are capital items.
• Both qualify for AIA — 100% deductible in 2025/26.
• Deduction: £2,000

She also subscribes to Microsoft 365 (£100/yr) and Grammarly (£140/yr) — both revenue expenses, fully deductible.

Pension contributions

Not strictly a business expense, but tax-efficient for sole traders:

• Personal pension contributions are made net of basic rate (you pay £80, HMRC adds £20 = £100 in pension).
• Higher-rate relief is claimed via Self Assessment in the dividends-and-other-income section.

Maximum tax-relieved contribution = your "relevant earnings" or £60,000, whichever is lower. For sole traders, relevant earnings = net trading profit (not turnover).

Cash basis vs accruals basis

By default, sole traders use cash basis accounting (since April 2024 it's the default for those under £300k turnover):

• Income counted when received.
• Expenses counted when paid.
• No need to track debtors/creditors.

Accruals basis required if:

• Turnover above £300,000 (April 2024 threshold).
• You want to use stock valuation for trade.
• You need to claim losses against other income (cash basis restricts this).

Most simple sole traders use cash basis and find it dramatically simpler.

What you can't claim

• Personal expenses dressed up as business.
• Speeding tickets, parking fines, court costs.
• Client entertainment (HMRC views as a "private" benefit) — only your staff entertainment is allowable, up to £150/head/year.
• Initial training to acquire a new trade (training to update existing skills is allowable).
• Mortgage capital repayment (only interest).
• Insurance of personal nature (life insurance, personal disability — pension life cover excluded).
• Withdrawals/drawings by you from the business (treated as personal taking, not business expense).
• Income tax and NI on yourself.

Record keeping — what to save

For each expense:

• Date.
• Amount in £.
• Description — what was bought.
• Business purpose.
• Receipt or invoice (digital scan OK).
• Payment method (bank statement reference).

Keep for 5 years after the 31 January submission deadline. HMRC's enquiry window for normal cases is 12 months from submission, but can extend further for careless/deliberate errors.

Worked example — Priya, full year of self-employment

Priya is a freelance translator. Her 2025/26:

Her tax bill (rough):

• Personal allowance £12,570 → £0 tax.
• Basic rate 20% on remaining £25,803 = £5,160.50.
• Class 4 NI 6% on £25,803 = £1,548.20.
• Total tax + NI: £6,708.70

Class 2 NI auto-credited (profits above SPT £6,725, no payment needed). Class 4 NI calculated automatically by HMRC from her declared profit.

Common errors

1. Claiming 100% of phone/broadband when there's clear personal use too.
2. Claiming commuting to a regular client's office.
3. Claiming new-trade training (e.g. a plumber paying for plumbing course — not allowable as deduction against existing self-employed income).
4. Mixing up cash basis vs accruals (invoices issued vs received).
5. Forgetting AIA for capital items (claiming them as ongoing rather than capital).
6. Not keeping receipts — HMRC can disallow expenses without evidence.

Coming next in the series

• Part 5: Capital gains in your Self Assessment
• Part 6: Payments on account
• Part 7: Making Tax Digital
• Part 8: After you file — refunds, amendments, audits

Sources

• HMRC: Expenses if you're self-employed
• HMRC: Simplified expenses if you're self-employed
• HMRC: Cash basis
• HMRC: Capital allowances
• HMRC: Approved mileage allowance payments