Pillar Guide · Updated June 2026
UK Self-Employed Expenses 2026/27
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.
Allowable vs Disallowable Expenses
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.