Allowable Expenses: The Complete Sole Trader Guide

One of the most common questions sole traders ask is: what can I actually claim? The answer is more generous than many people realise, but it comes with an important condition — the expense must be wholly and exclusively for business purposes. That phrase does a lot of heavy lifting in tax law, and understanding it properly can save you hundreds or even thousands of pounds a year.

Let us start with the obvious ones. Office costs including stationery, printing, postage, and computer software are all allowable. If you work from home, you can claim a proportion of your household costs — heating, electricity, council tax, mortgage interest or rent, and broadband. HMRC offers a simplified method where you claim a flat rate based on the hours you work from home: £10 per month for 25-50 hours, £18 for 51-100 hours, and £26 for 101 or more hours. Alternatively, you can calculate the actual proportion of your home used for business, which often gives a higher figure but requires more detailed records.

Travel costs are another significant area. You can claim mileage for business journeys at 45p per mile for the first 10,000 miles and 25p thereafter. This covers fuel, insurance, repairs, and depreciation in one simple rate. Alternatively, you can claim actual vehicle costs and capital allowances, but the mileage method is simpler for most sole traders. Public transport, parking, and hotel costs for business trips are also fully allowable.

Stock and materials — anything you buy to sell on or use in providing your service — are straightforward business expenses. This includes raw materials, goods for resale, and direct costs of providing your service.

Staff costs are fully allowable if you employ anyone. This includes salaries, employer's National Insurance, pension contributions, benefits, and subcontractor costs. If your spouse helps in the business, you can pay them a reasonable salary for the work they actually do, which can be a legitimate way to use both of your personal allowances.

Financial costs include bank charges, interest on business loans, hire purchase interest, and credit card charges for business purchases. Accountancy fees, legal fees related to the business, and professional indemnity insurance are all allowable. Subscriptions to professional bodies and trade journals also qualify.

Marketing and advertising costs are fully deductible. Website costs, business cards, advertising, and sponsorship all count. The cost of your business phone or a proportion of your personal phone used for business is also allowable.

Training is an area where many sole traders under-claim. Training courses that maintain or update your existing skills are allowable. However, training to acquire entirely new skills or qualifications is not — HMRC draws a distinction between updating existing expertise and acquiring new capabilities.

Capital allowances deserve special mention. Large purchases like computers, vehicles, machinery, and equipment are not claimed as expenses in the year of purchase. Instead, you claim capital allowances, which spread the cost over time. The Annual Investment Allowance currently allows you to claim the full cost of qualifying assets up to £1 million in the year of purchase, which means most sole traders can effectively expense their capital purchases immediately.

Clothing is often misunderstood. You cannot claim ordinary clothing even if you only wear it for work. However, protective clothing, uniforms with your business logo, and costumes for performers are all allowable.

Bad debts — money owed to you that you cannot collect — can be claimed as an expense once you have genuinely written them off.

The key to claiming expenses properly is record-keeping. Keep every receipt, log every business journey, and categorise every transaction. Software like Accounted makes this straightforward by letting you photograph receipts and categorise expenses as they happen, rather than trying to reconstruct twelve months of spending from memory.

One final point: do not be afraid to claim what you are entitled to. Many sole traders under-claim because they are worried about attracting HMRC attention. As long as your claims are genuine, well-documented, and wholly and exclusively for business purposes, you should claim everything you can. That is not aggressive tax planning — it is simply knowing the rules.