The rule that governs everything
HMRC allows you to deduct costs from your income before calculating how much tax you owe. But not every cost qualifies. The golden rule is that an expense must be incurred "wholly and exclusively" for the purposes of your trade. That phrase comes directly from the tax legislation, and HMRC applies it strictly.
In practice it means: if you bought something partly for personal use and partly for work, HMRC may disallow the whole expense unless you can make a clear apportionment. For example, if you use your mobile phone 60% for business, you can claim 60% of the bill.
What counts as an allowable expense
Broadly, the following categories are allowable for most self-employed people:
- Office costs — stationery, printer ink, postage, software subscriptions
- Travel costs — fuel, train tickets, parking, and the cost of overnight stays for business trips (not your daily commute)
- Stock or materials you buy to sell on or use in your work
- Financial costs — accountancy fees, business insurance, bank charges on a business account
- Marketing — website hosting, domain names, advertising, business cards
- Training — courses that update or improve skills relevant to your current trade (not retraining for a new one)
Common expenses most people miss
These are the ones that regularly slip through the cracks:
- Mobile phone. If you use your personal phone for work, claim a reasonable proportion of the monthly contract cost. Keep a record of how you arrived at that percentage.
- Working from home. You can either claim a flat rate (HMRC's simplified expenses, currently up to £26/month depending on hours worked), or calculate actual additional costs such as heat, light, and broadband based on the proportion of your home used for work.
- Mileage. If you use your own car for business journeys, claim 45p per mile for the first 10,000 miles in a tax year, then 25p per mile after that. You don't need to own a commercial vehicle; a personal car qualifies. Keep a mileage log.
- Tools and equipment. A laptop, camera, power tools, musical instruments used for gigs — these can be claimed, either in full in the year of purchase under the Annual Investment Allowance, or spread over several years as capital allowances.
- Professional subscriptions. Membership fees for trade bodies, professional institutes, or industry publications are allowable if they're relevant to your work. HMRC publishes an approved list, but most relevant memberships qualify.
- Bank charges. Charges on a dedicated business bank account are an allowable expense. If you use a personal account for business (not ideal), you can only claim the charges attributable to business transactions.
Quick tip: You don't need receipts for every single small purchase, but you do need to be able to justify every figure on your tax return if HMRC asks. A simple spreadsheet updated monthly is enough for most sole traders.
What you cannot claim
Some costs feel like business expenses but HMRC won't allow them:
- Everyday clothing. Even if you only wear a suit for client meetings, it's not allowable because it doubles as personal clothing. The exception is a genuine uniform or protective clothing with a visible business logo that you couldn't reasonably wear elsewhere.
- Client entertaining. Taking a client to lunch or to a sporting event is explicitly disallowed under UK tax law, regardless of how much business you discussed. Overseas entertaining has slightly different rules, but domestic client hospitality is a firm no.
- Fines and penalties. Parking tickets, HMRC late-filing penalties — none of these are deductible. They're considered a personal consequence, not a business cost.
- Personal items with a work excuse. Buying a new television and claiming it's for "market research" won't pass scrutiny. The wholly and exclusively test applies.
The key rule to remember
Every pound of allowable expenses reduces your taxable profit by a pound. For a basic-rate taxpayer that saves roughly 29p in tax and National Insurance contributions for every pound you claim. For a higher-rate taxpayer the saving is larger. The expenses you miss don't disappear — you just end up paying tax on money you didn't need to.
If you're unsure whether something qualifies, ask yourself: would I have bought this if I wasn't self-employed? If the honest answer is no, there's a good argument it's a legitimate business cost.
For a complete walkthrough of what to record, how to calculate your profit, and how to file your Self Assessment return without overpaying, the full guide covers all of it step by step.