Every deduction you can claim against your profits — with HMRC rules, mileage rates, home working options and real examples
HMRC allows sole traders to deduct expenses that are wholly and exclusively for the purpose of the trade, profession or vocation. This is the single rule that governs every expense claim. If an expense has a dual purpose — partly business, partly personal — you generally cannot claim any of it unless HMRC recognises a clear business proportion.
There are some situations where a proportion is acceptable: for example, a phone bill that is partly personal can be split, with only the business-use percentage deducted. But for expenses that are inherently personal (such as food, clothing, or commuting), HMRC does not accept any deduction regardless of how much you claim the expense was for work.
Day-to-day office costs that are wholly for business use are fully deductible. These are revenue expenses — claimed in full in the year you incur them.
Business travel costs are allowable, but commuting from home to a fixed regular workplace is never deductible — this is a personal expense in HMRC's view. Business journeys (visiting clients, attending meetings at different sites, travelling to temporary workplaces) are fully claimable.
Rather than claiming actual fuel and running costs, most sole traders use HMRC's approved mileage rates:
| Vehicle | First 10,000 miles | Above 10,000 miles |
|---|---|---|
| Car or van | 45p per mile | 25p per mile |
| Motorcycle | 24p per mile | 24p per mile |
| Bicycle | 20p per mile | 20p per mile |
The mileage rate covers fuel, oil, tyres, insurance and wear and tear — you cannot also claim fuel separately on top. You must keep a mileage log showing the date, starting point, destination, purpose of journey and miles travelled for every business trip.
Instead of mileage rates, you can claim the actual costs of running a vehicle (fuel, insurance, road tax, repairs, MOT, loan interest) in proportion to business use. For example, if 70% of your driving is business, you claim 70% of all vehicle costs. This method often suits higher-mileage or lower-emission vehicles but requires more detailed records and cannot be switched to mileage rates once actual costs have been used for that vehicle.
If you run your business wholly or partly from home, you can claim a proportion of your household costs. HMRC offers two methods — use whichever gives you a larger deduction.
HMRC's simplified flat rate is based on hours worked at home per month:
| Hours worked at home per month | Monthly flat rate |
|---|---|
| 25 to 50 hours | £10 |
| 51 to 100 hours | £18 |
| 101 hours or more | £26 |
The maximum is £26/month (£312/year) for full-time home workers. No receipts are needed — just record the hours. This is simple but modest compared to actual costs for many full-time home workers.
You can claim a percentage of actual household costs — heating, electricity, water, broadband, mortgage interest or rent. The calculation uses the proportion of rooms used for work and hours used:
For example, if you have 8 rooms and use 1 exclusively for business, the room proportion is 1/8 = 12.5%. If you work 5 days a week, the time proportion is 5/7 = 71%. Apply both: 12.5% × 71% = 8.9% of eligible household costs.
Fees paid for professional services that relate to the business are allowable expenses:
Note: if legal fees relate to the purchase or disposal of a capital asset (buying a building, for example), they are not a revenue expense but a capital cost — you add them to the asset's base cost for Capital Gains Tax purposes.
If you hire employees or engage subcontractors, those costs reduce your taxable profit:
All reasonable marketing and advertising costs for the business are deductible:
Gifts to customers are only deductible if they cost less than £50 per person per year, carry a clear advertisement for the business, and are not food, drink, tobacco or vouchers exchangeable for those items.
The cost of goods bought for resale, or materials used in delivering your service, are allowable business expenses:
At year-end, if you hold unsold stock, you must include its value — you only deduct the cost of stock actually sold (Cost of Goods Sold), not everything purchased. Opening stock + purchases − closing stock = cost of goods sold.
Interest and charges on borrowings used wholly for the business are deductible:
You cannot deduct interest on personal loans, even if the money was used for the business, or interest on the capital element of a hire purchase or loan repayment (only the interest portion qualifies).
When you buy equipment, machinery, vehicles or other long-term assets for the business, you cannot deduct the full cost as a normal expense. Instead you claim capital allowances. The most important one for most sole traders is the Annual Investment Allowance.
The AIA lets you deduct the full cost of qualifying plant and machinery in the year of purchase, up to £1,000,000. For a sole trader, this effectively means you can write off the full cost of most business equipment immediately:
Cars do not qualify for AIA (unless they are pool cars with no private use). Car costs are handled through Writing Down Allowances or the mileage rate method described above.
For assets not covered by AIA (or where the AIA limit is exceeded), WDAs apply: 18% per year for standard-rate items, 6% per year for integral features, and 100% first-year allowance for new low-emission cars under 50g/km CO₂.
The following are never allowable as business expenses, regardless of circumstances:
Annual income: £48,000
Allowable expenses claimed:
You must keep business records for at least 5 years after the 31 January filing deadline for that tax year. For the 2026/27 return (deadline 31 January 2028), records must be kept until at least 31 January 2033.
You must keep:
HMRC does not require paper records — digital records are fully acceptable. Apps like Dext, Auto Entry or HMRC's own Making Tax Digital-compatible software can capture receipts by photo. HMRC can investigate returns at any time within the 5-year window and will request evidence for any expenses claimed.
Sole traders can deduct any expense that is 'wholly and exclusively' for the purpose of the business. This includes office costs (stationery, phone, broadband), travel (45p per mile for first 10,000 business miles), home working (£6 per week flat rate or actual proportion), professional fees (accountant, legal), marketing, stock and materials, staff costs and business insurance. Personal expenses cannot be claimed.
HMRC offers two routes. The simplified flat rate is up to £26 per month (£312/year) for those working 101+ hours at home per month — no receipts needed. Alternatively you can claim a proportion of actual household costs (heating, electricity, broadband) based on the rooms and hours used for business. The actual-cost method can be higher for full-time home workers but requires records.
45p per mile for the first 10,000 business miles in a tax year, then 25p per mile above that. This rate covers fuel, insurance, wear and tear — you cannot also claim fuel separately. Keep a mileage log showing date, destination, purpose and miles for every business trip.
Yes. Under the Annual Investment Allowance, sole traders can deduct the full cost of plant and machinery (computers, tools, equipment) in the year of purchase, up to £1,000,000. For items used partly for business, you claim the business-use proportion only.
Only if it is a uniform, branded workwear or protective clothing required specifically for work — such as a hard hat, hi-vis jacket or branded uniform. Ordinary clothing you could wear outside work does not qualify even if you only wear it for work. This is one of the most commonly rejected claims by HMRC.
Not as a business expense — but pension contributions to a personal pension or SIPP reduce your adjusted net income, effectively saving tax at your marginal rate. For every £800 you pay in, the pension provider claims £200 from HMRC, creating an effective £1,000 contribution. Higher-rate taxpayers can claim further relief via Self Assessment.
Revenue expenditure is day-to-day running costs (rent, materials, subscriptions) — deducted from profits in the year they occur. Capital expenditure is the purchase of long-term assets (equipment, machinery, vehicles) — not automatically deducted but eligible for capital allowances, typically the Annual Investment Allowance which allows immediate 100% deduction up to £1m.
Keep records for at least 5 years after the 31 January filing deadline. For expenses: receipts, invoices, bank statements and mileage logs. Digital records are acceptable. HMRC does not require paper — apps that photograph receipts are widely used. You must produce records on request if HMRC investigates.