Every pound of allowable expense you claim cuts your taxable profit — and with it both your income tax and your Class 4 National Insurance. Yet many sole traders either miss legitimate deductions or, just as costly, claim disallowable ones and risk an HMRC enquiry. This 2026/27 guide draws the line clearly: which costs are allowable and which are disallowable, when the simplified expenses flat rates beat working out actual costs, how to claim for a home office, the mileage allowance of 45p per mile for the first 10,000 business miles and 25p thereafter, the £1,000 trading allowance, and how it all flows through to your tax bill — with a worked example.
The golden rule is “wholly and exclusively for the purposes of the trade”. A cost meeting that test is allowable and reduces your profit; a private or mixed cost generally is not.
Allowable
Disallowable
Office costs, stationery, software
Personal or private spending
Business travel & accommodation
Everyday clothing
Stock, materials, marketing
Client entertaining
Accountancy & professional fees
Most fines and penalties
Business insurance, bank charges
Your own drawings / wages
For mixed costs — a phone, broadband or vehicle used for both work and home — you claim only the business proportion. Buying equipment is capital expenditure, relieved through capital allowances rather than as a routine expense.
Simplified Expenses
HMRC offers optional flat rates so sole traders need not calculate actual costs for three things:
Business mileage — a flat rate per mile (see below) instead of actual motoring costs.
Working from home — a flat monthly amount based on hours worked.
Living on business premises — a flat deduction for private use of premises such as a guesthouse.
Simplified expenses save time but are not always the most generous. For an expensive home office or a high-cost vehicle, the actual-cost method can produce a bigger deduction. You can mix methods — for example flat-rate mileage but actual home-office costs. Compare both with the self-employed tax calculator.
The Home-Office Claim
If you work from home, you can claim either the simplified flat monthly rate (tiered by the hours you work from home each month) or the actual proportion of your household running costs attributable to business use.
The actual-cost method apportions rent or mortgage interest, council tax, heating, lighting and broadband — usually by the number of rooms used for business and the proportion of time they are used for work. For a full-time home worker this often beats the flat rate, but demands careful records. See the working from home tax relief guide for the detail.
Mileage: 45p and 25p
Under simplified expenses, you claim a flat rate for every business mile:
Vehicle / band
Rate per mile
Car/van, first 10,000 business miles
45p
Car/van, miles above 10,000
25p
Motorcycle
24p
The flat rate covers fuel, servicing, insurance and depreciation, so you cannot claim those separately as well. The alternative is to claim the business proportion of all actual motoring costs plus capital allowances — but once you choose the mileage method for a vehicle you must keep using it for that vehicle. Keep a mileage log.
The £1,000 Trading Allowance
The trading allowance lets you earn up to £1,000 of self-employed or casual income tax-free, with no need to register for Self Assessment or keep detailed records.
Above £1,000, you choose: deduct your actual allowable expenses, or deduct the flat £1,000 allowance — whichever leaves you better off, but never both. For a side hustle with minimal costs, the flat £1,000 usually wins; for a cost-heavy trade, actual expenses win. See the side hustle tax guide if this is a second income.
How Expenses Cut Your Tax
Allowable expenses are deducted from gross income to reach taxable profit, and both income tax and Class 4 National Insurance are charged on that profit. So each £1 of expense saves tax at your marginal income tax rate plus the Class 4 rate.
For a basic-rate sole trader that is roughly 20% income tax plus 6% Class 4 — about 26p saved per £1 of expense. For a higher-rate trader the income tax part rises to 40%, so the saving is greater still. Complete, accurate records therefore translate directly into higher take-home profit. Class 2 NI is no longer generally payable for most, but Class 4 still applies on profits above the threshold.
Worked Example: A Sole Trader’s Profit
Take a basic-rate sole trader with £45,000 of turnover and a mix of allowable expenses. Figures are illustrative for 2026/27.
Turnover: £45,000.
Direct costs (stock, materials, software): £9,000.
Mileage: 8,000 business miles × 45p = £3,600.
Home office (actual method): £1,400.
Accountancy, insurance, marketing: £2,000.
Total allowable expenses: £16,000 → taxable profit £29,000.
Without those £16,000 of expenses, profit would be £45,000 — taxed plus Class 4 NI on the extra £16,000. At roughly 26% combined that is about £4,160 of tax saved by claiming correctly. Run your own numbers with the self-employed tax calculator.
You can claim costs incurred wholly and exclusively for your business: office costs and stationery, business travel and accommodation, stock and raw materials, marketing and website costs, professional and accountancy fees, business insurance, bank and finance charges on a business account, training that maintains existing skills, and staff wages if you employ anyone. Claiming these allowable expenses reduces your taxable profit, which lowers both your income tax and your Class 4 National Insurance. Keep receipts and records for at least five years after the Self Assessment deadline.
What expenses are disallowable?
Disallowable costs cannot be deducted from your profit. These include personal or private expenditure, the cost of everyday clothing (even if worn for work), client entertaining, most fines and penalties, your own wages or drawings, the capital cost of buying equipment (relieved instead through capital allowances), and the private-use proportion of any mixed expense. Where a cost is part business and part private — such as a phone or car — you can only claim the business proportion. Getting the split right and excluding disallowable items is a common area for HMRC enquiry.
What are simplified expenses?
Simplified expenses are optional flat rates HMRC lets sole traders and partnerships use instead of working out the actual business cost of certain things. They cover three areas: business mileage (a flat rate per mile), working from home (a flat monthly amount based on hours worked), and living on your business premises (a flat deduction for private use). They save time and record-keeping, but are not always the most generous option — for a high-cost home office or expensive vehicle, calculating actual costs can give a bigger deduction. You can mix methods across different expense types.
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How much can I claim for working from home?
You have two options. Under simplified expenses, you claim a flat monthly amount based on the number of hours you work from home each month — for example a set rate for 25–50 hours, more for 51–100, and more again for 101+ hours. Alternatively, you can work out the actual proportion of your household costs (rent or mortgage interest, council tax, utilities, broadband) attributable to business use, usually by rooms and time. The actual-cost method often yields a larger claim for those who work from home full-time, but requires more record-keeping.
What is the business mileage rate for the self-employed?
If you use simplified expenses for your vehicle, you claim a flat rate per business mile: 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile thereafter, and 24p for motorcycles. This rate is meant to cover fuel, servicing, insurance and depreciation, so you cannot also claim those running costs separately. The alternative is to claim the actual business proportion of all your motoring costs plus capital allowances on the vehicle. Once you choose the mileage method for a vehicle, you must keep using it for that vehicle.
What is the £1,000 trading allowance?
The trading allowance lets you earn up to £1,000 of self-employed or casual trading income in a tax year tax-free, without registering for Self Assessment or keeping detailed records. If your income is above £1,000, you can either deduct your actual allowable expenses from your income, or deduct the £1,000 allowance instead — whichever is more beneficial. You cannot do both. For someone with very low expenses, claiming the flat £1,000 allowance is often better than itemising; for someone with high costs, deducting actual expenses wins.
How do expenses reduce my tax bill?
Allowable expenses are deducted from your gross self-employed income to arrive at your taxable profit. Because both income tax and Class 4 National Insurance are charged on that profit, every £1 of allowable expense can save tax at your marginal rate plus the Class 4 rate. For a basic-rate sole trader that is roughly 20% income tax plus 6% Class 4 — about 26p saved per £1 of expense. For a higher-rate trader the income tax element rises to 40%. This is why accurate, complete expense records directly increase your take-home profit.
Can I claim for equipment I buy for my business?
Yes, but usually through capital allowances rather than as a day-to-day expense. The cost of equipment, tools, computers and machinery is capital expenditure, and you generally claim it via the Annual Investment Allowance, which gives 100% relief on most such purchases in the year of purchase up to a generous limit. Vehicles have their own rules. If you use the cash basis (which most small sole traders do by default), most equipment can simply be deducted as a normal expense when paid for, except cars. Either way you get relief — the mechanism just differs.
Do I need receipts for every expense?
You should keep evidence for every expense you claim — receipts, invoices, bank and card statements, and mileage logs. HMRC can ask to see them, and unsupported claims may be disallowed in an enquiry, with interest and penalties. You must keep self-employment records for at least five years after the 31 January Self Assessment deadline for that tax year. Digital record-keeping is increasingly important: Making Tax Digital for Income Tax begins for sole traders with qualifying income above £50,000 from April 2026, requiring digital records and quarterly updates.
Can I claim for food and subsistence when self-employed?
Only in limited circumstances. Everyday meals are treated as a private, disallowable expense because everyone has to eat regardless of work. You can generally claim subsistence only when it relates to a business journey outside your normal working pattern — for example an overnight stay away from home, or a trip to an irregular or temporary workplace. Routine lunches bought near your usual place of work do not qualify, even if you are self-employed.
Disclaimer: This guide reflects 2026/27 UK rules for self-employed expenses. Allowable cost rules, simplified expenses rates, the mileage rates, the trading allowance and MTD thresholds change at fiscal events, and the right method depends on your circumstances. Consult a qualified accountant before relying on these figures, and refer to gov.uk for current official guidance.
