If you are a sole trader, the difference between a good tax bill and a bad one often comes down to one thing: what you claim. Claim everything you are entitled to and your taxable profit drops. Miss something and you pay tax you did not need to.

This is your 2025/26 checklist of allowable expenses sole trader style. It covers every major category, explains the rules in plain English, and flags the traps that trip people up.

We are ICAEW qualified accountants. We see the same mistakes every year: the missed mileage, the forgotten software subscriptions, the home office claim that is too low because the client was not sure. This guide fixes that.

What Counts as an Allowable Expense for a Sole Trader?

HMRC's rule is simple: the expense must be "wholly and exclusively" for the purposes of your trade. That means the cost has to be incurred in the course of running your business and nothing else.

If you use something partly for business and partly privately, you can only claim the business proportion. That is where most of the complexity lives. More on that below.

You record expenses on your Self Assessment tax return. Specifically on the self-employment pages (SA103) if you file a paper return, or within the software if you file digitally. Most sole traders now file through MTD-compatible software like Xero, FreeAgent, or QuickBooks. From April 2026, if your qualifying income is over £50,000, MTD for ITSA is mandatory anyway.

The Full Allowable Expenses Checklist

Below is every major category. I have grouped them into the sections you will see on your tax return.

Office and Premises Costs

  • Rent and business rates for premises you use exclusively for your business. If you rent a separate workshop, studio, or office, the full rent is allowable.
  • Utility bills for those premises: gas, electricity, water, internet, business phone line.
  • Insurance for the premises: buildings, contents, public liability, professional indemnity.
  • Cleaning and maintenance of the business premises.
  • Home office costs (see the dedicated section below).

Vehicle and Travel Costs

  • Fuel for business travel. You can claim the actual cost of fuel for business miles, or use HMRC's approved mileage rates. Most sole traders find the mileage rate simpler.
  • Approved mileage rates for 2025/26: 45p per mile for the first 10,000 business miles in a year, 25p per mile after that. For motorcycles, 24p per mile. For bicycles, 20p per mile.
  • Parking, tolls, and congestion charges incurred on business journeys.
  • Train, bus, and air fares for business travel.
  • Hotel accommodation when you are away from home overnight for business.
  • Vehicle insurance, repairs, and servicing if you use the vehicle solely for business. If you use it privately too, you can only claim the business proportion. The mileage rate already covers these costs, so do not claim them separately if you use the mileage method.

Equipment and Tools

  • Tools and equipment you need for your trade. A plumber's tools. A hairdresser's scissors. A photographer's camera.
  • Computers, laptops, tablets, and monitors. If you use them mainly for business, the full cost is allowable. If you use them privately too, claim the business proportion.
  • Software and subscriptions. Xero, FreeAgent, Adobe Creative Cloud, Microsoft 365, project management tools, industry-specific software. All allowable.
  • Mobile phones. If you have a separate business phone, the full cost is allowable. If you use your personal phone for business calls, you can claim a proportion of the bill. HMRC accepts a flat 20% of the line rental plus the full cost of business calls as a reasonable estimate in many cases.
  • Furniture for your business premises or home office. Desk, chair, filing cabinet, shelving.

For most equipment purchases, you claim the cost through capital allowances. The Annual Investment Allowance (AIA) lets you claim 100% of the cost of most plant and machinery in the year you buy it, up to £1,000,000. That means the full cost comes off your taxable profit immediately.

Stock and Raw Materials

  • Goods you buy to resell.
  • Raw materials used in manufacturing.
  • Packaging and shipping materials.
  • Direct costs of producing your product.

Marketing and Professional Fees

  • Website hosting, domain names, and website design.
  • Advertising: Google Ads, social media ads, print ads, directory listings.
  • Printing of brochures, flyers, business cards.
  • Accountancy fees. Yes, our fees are an allowable expense. You claim them in the year they relate to, not necessarily the year you pay them if you are on accrual basis.
  • Bookkeeping software fees.
  • Professional subscriptions to trade bodies and professional institutes relevant to your business.
  • Legal fees for business matters. Note: legal fees for buying business premises are not allowable as a revenue expense. They go into the cost of the asset.

Staff Costs (if you employ anyone)

  • Salaries, wages, and bonuses for employees.
  • Employer's National Insurance contributions.
  • Pension contributions for employees.
  • Training costs for employees that are relevant to their current role.

Financial Costs

  • Bank charges on your business bank account.
  • Interest on business loans and overdrafts.
  • Credit card fees on business transactions.
  • Hire purchase interest on business assets.
  • Late payment interest you charge to customers is taxable income. Late payment interest you pay to suppliers is an allowable expense.

Other Common Expenses

  • Training courses that update existing skills or knowledge relevant to your current trade. Training to start a new trade is not allowable.
  • Books, journals, and trade publications.
  • Protective clothing and uniforms. Ordinary clothing you could wear outside work is not allowable, even if you only wear it for work.
  • Business entertainment of clients is not allowable. Staff entertainment is allowable up to £150 per head per year.
  • Subsistence when travelling for business. You can claim the cost of meals if you are away from your normal place of work overnight or for a significant period. HMRC's benchmark rates are £5 for breakfast, £5 for lunch, and £10 for dinner if you are staying away overnight.

Home Office Expenses: The Trickiest One

If you work from home, you can claim a proportion of your household costs. You have two options.

Option 1: HMRC's simplified expenses. You claim a flat rate based on the number of hours you work from home per month. For 2025/26 the rates are:

  • 25 to 50 hours: £10 per month
  • 51 to 100 hours: £18 per month
  • 101 hours or more: £26 per month

That is £312 per year maximum. It is simple. It is often too low for people with a dedicated home office.

Option 2: Actual costs. You calculate the proportion of your household bills that relate to your business use. You need a reasonable basis for apportionment. The most common method is floor area: measure the square footage of the room you use for business, divide by the total square footage of your home, and apply that percentage to the relevant bills.

Which bills? Council tax, mortgage interest (not capital repayments), rent, gas, electricity, water, internet, home insurance, and repairs to the fabric of the building. You cannot claim the full cost of any of these. Only the business proportion.

For most sole traders with a dedicated home office, the actual cost method gives a higher claim than simplified expenses. It takes more record-keeping. But it is usually worth it.

Let us run a real example. A freelance graphic designer in Bristol works from a spare bedroom that is 12 square metres. Her house is 100 square metres. That is 12% of the floor area. Her annual gas and electricity bill is £1,800. Her council tax is £2,400. Her internet is £360. Her home insurance is £200. Total relevant bills: £4,760. 12% of that is £571.20. That is £259 more than the simplified expenses rate. Over a few years, that adds up.

Vehicle Expenses: Mileage vs Actual Costs

You have the same two-option choice with vehicles. Simplified expenses (mileage rate) or actual costs.

Mileage rate: 45p per mile for the first 10,000 business miles, 25p thereafter. You keep a mileage log. You claim no other vehicle costs. No fuel receipts. No servicing costs. No insurance. It is all wrapped into the rate.

Actual costs: You add up all your vehicle running costs (fuel, insurance, repairs, servicing, MOT, road tax, finance costs) and claim the business proportion. You need to know your total mileage and your business mileage for the year. If you drive 12,000 miles total and 8,000 are business, you claim 66.7% of the running costs.

Which is better? For high-mileage drivers in fuel-efficient cars, the mileage rate often wins. For lower-mileage drivers or those with expensive-to-run vehicles, actual costs can be higher. You do the maths both ways in year one and pick the better one. You can switch between methods each year.

One rule: if you claim mileage rate, you cannot also claim capital allowances on the vehicle. If you claim actual costs, you can claim capital allowances on the purchase cost (subject to the usual rules).

What You Cannot Claim as a Sole Trader

Some expenses are never allowable. Know these to avoid HMRC enquiries.

  • Personal clothing even if you only wear it for work. A suit for a consultant is not allowable. A branded uniform or protective gear is.
  • Client entertainment. Meals, drinks, or events for clients are not deductible. You can claim staff entertainment up to £150 per head per year.
  • Fines and penalties. Parking fines, speeding tickets, late filing penalties. None are allowable.
  • Capital repayments on loans. Only the interest element is allowable.
  • Drawings. Money you take out of the business for personal use is not an expense. It is your profit.
  • Political donations.
  • Membership fees for non-business clubs. A gym membership is not allowable unless you can demonstrate a specific business need (rare).

Record Keeping: What You Need to Keep

HMRC can ask to see receipts for up to five years after the filing deadline. For most sole traders, that means keeping records for six years from the end of the tax year. Keep digital copies. Keep paper originals if you prefer. But keep them.

You need to record the date, amount, supplier, and business purpose of every expense. A spreadsheet works. Accounting software is better. Xero, FreeAgent, and QuickBooks all let you photograph receipts with your phone and attach them to transactions. That is the gold standard.

For vehicle mileage, keep a log. Date, destination, purpose, miles. A notebook in the glovebox. An app. A spreadsheet. HMRC accepts reasonable estimates in some cases, but a contemporaneous log is much harder to challenge.

From April 2026, if your self-employment income is over £50,000, you must file digitally under Making Tax Digital for Income Tax. That means using MTD-compatible software and keeping digital records. If you are under £50,000, it becomes mandatory from April 2027 for those over £30,000, and from April 2028 for those over £20,000. If you are not already using digital bookkeeping, now is the time to start.

A Quick Note on Cash vs Accrual Basis

Most sole traders use the cash basis. You record income when it hits your bank account and expenses when they leave it. Simple. The cash basis is the default for sole traders with a turnover under £150,000.

The accrual basis records income when you invoice and expenses when you receive the bill, regardless of when money moves. It is more complex. It is mandatory if your turnover exceeds £150,000 or if you are a limited company.

For most sole traders, the cash basis is fine. It aligns with your bank balance. It is what your bookkeeping software will default to.

When to Speak to an Accountant

This checklist covers the vast majority of what a typical sole trader needs. But if any of the following apply, talk to us:

  • You use your home extensively for business and want to maximise the home office claim.
  • You have a mixed-use vehicle and are unsure whether mileage or actual costs works better.
  • You are close to the VAT registration threshold (£90,000 turnover in a rolling 12 months).
  • Your turnover is approaching £150,000 and you need to move from cash to accrual basis.
  • You are considering incorporating as a limited company.

We are ICAEW qualified accountants. We handle sole traders across every sector: trades, consultancies, creative businesses, tech, retail, and services. If you want us to review your expense claims or handle your Self Assessment, get in touch. We will make sure you are claiming everything you are entitled to and nothing you are not.