Running a business costs money.
Tools, software, travel and other everyday business costs can all affect how much profit you pay tax on.
But not everything you spend counts as a business expense.
Here’s what you need to know.
What is an allowable expense?
An allowable expense is a business cost that can be deducted from your income when calculating your taxable profit.
If your business earns £40,000 and you have £10,000 of allowable expenses, your taxable profit would normally be £30,000.
You don’t get the £10,000 back.
It simply reduces the profit used to calculate your tax.
What expenses can you claim?
What you can claim depends on your business.
A decorator will have different expenses from a photographer or consultant, but there are plenty of costs that many sole traders have in common.
Tools, equipment and supplies
Tools, materials, stock, stationery and equipment needed for your work may be allowable.
Larger purchases can be treated differently for tax, so keep your receipts and make sure they’re recorded correctly.
Phone and internet
Use your phone or internet for business?
You can normally claim the business proportion of the cost.
If you use them personally too, you can’t usually claim the whole bill.
Travel and mileage
Business travel can be an allowable expense.
You may be able to claim actual vehicle costs or use HMRC’s simplified mileage rates.
For 2026/27, cars and goods vehicles can claim 55p per business mile for the first 10,000 miles and 25p after that.
Your normal journey between home and your usual place of work isn’t normally allowable.
Working from home
If you regularly work from home, you may be able to claim part of your household costs.
This can include things such as heating and electricity.
Eligible sole traders can also use HMRC’s simplified expenses, based on the number of hours worked from home each month.
Software and subscriptions
Pay for software to run your business?
Accounting software, booking systems and other business subscriptions may be allowable expenses.
Relevant professional or trade subscriptions may also qualify.
Advertising and marketing
Website and advertising costs can normally be claimed when they’re for your business.
Client entertaining is different.
Taking a customer out for a meal might be business-related, but business entertainment is generally not an allowable expense for tax.
Insurance and professional costs
Business insurance and certain professional fees can also be allowable.
That can include accountancy costs relating to your business, although some personal tax costs may not qualify.
Staff and subcontractors
If you employ someone or use subcontractors, qualifying business costs can include wages, employer National Insurance, pension contributions and subcontractor payments.
Training related to your existing business may also qualify.
What can’t you claim?
Paying for something from your business bank account doesn’t automatically make it a business expense.
Personal spending isn’t allowable.
Neither are fines and penalties, most client entertaining or the personal part of something you use for both work and home.
Money you take from your business for yourself isn’t an expense either.
For a sole trader, that money is normally treated as drawings and doesn’t reduce your taxable profit.
What if you use something personally too?
This is common.
Your phone might be used for customers and friends. Your car might cover business journeys and the weekly shop.
You can normally only claim the business part.
The important thing is to use a reasonable method to separate the two and keep records to support it.
Keep good expense records
You need records of your business expenses.
You don’t normally send your receipts to HMRC with your Self Assessment, but you need to be able to support the figures you report.
Regular bookkeeping makes this much easier.
It also reduces the chance of losing receipts, forgetting what you bought or missing expenses you could have claimed.
Keep the business side simple
You don’t need to memorise every HMRC expense rule.
You do need a good system.
Keep your receipts. Record expenses regularly. Separate business and personal spending where possible.
And if you’re unsure about an expense, ask rather than guess.
Brease keeps your bookkeeping organised throughout the year, with accounting software and support from real accountants when you need it.
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Looking for more simple business advice?
This guide is part of the Brease Guides collection, created to help sole traders understand bookkeeping, tax and Making Tax Digital without the jargon.
