Allowable Expenses for the Self-Employed in the UK, Plainly Explained

If you’re self-employed in the UK, your profit is your income minus your allowable expenses — and that profit is what you pay tax on. Every allowable expense you miss is tax you didn’t need to pay. So what exactly counts? HMRC applies one golden test: the expense must be incurred wholly and exclusively for the purposes of your trade.

The golden test

“Wholly and exclusively” sounds severe, but in practice it means: would you have spent this money if the business didn’t exist? Your laptop, your professional indemnity insurance, the stock on your shelves — clearly business. Your weekly shop — clearly not. And the grey middle — your mobile phone, your home, your car — gets apportioned: claim the business share, leave the personal share out. Get that principle right and almost everything else follows.

Every major category, in plain English

Office, property, and equipment. Rent, business rates, utility bills for business premises. If you work from home, HMRC lets you use simplified flat rates instead of working out exact proportions — currently £10 a month for 25–50 hours of home working, £18 for 51–100 hours, and £26 for 101 hours or more. Stationery, printer ink, postage, and software subscriptions all count.

Travel. Business travel costs — fares, fuel, parking, tolls, accommodation and meals on overnight business trips — are allowable. But there are two hard lines: ordinary commuting between home and a fixed place of work doesn’t count, and if you use your car you claim via HMRC’s simplified mileage rates (45p per mile for the first 10,000 business miles in a tax year, 25p per mile after that) instead of fuel receipts.

Clothing. Only clothes you couldn’t wear outside work — uniforms, protective gear, costumes for performers. That smart outfit you bought for client meetings? Not allowable, no matter how exclusively you wear it for work. This is one of the most commonly misunderstood rules.

Staff. Wages, salaries, bonuses, pensions, and employer’s National Insurance for people you employ — all allowable.

Stock and materials. Raw materials, goods you sell, and the direct costs of producing what you sell.

Financial costs. Business insurance, bank and overdraft charges, interest on business loans, hire purchase interest. Credit card interest is allowable on the business portion of the balance.

Advertising and marketing. Website costs, domain names, social media advertising, business cards, flyers — the full cost of getting yourself known.

Professional fees and subscriptions. Accountancy and legal fees for the business, plus subscriptions to trade bodies and professional journals directly relevant to your work.

Training. Courses that update or maintain the skills you already use in your business — allowable. Courses that teach you a new trade or profession — not allowable. HMRC draws the line between keeping your edge and starting a new one.

The claims that always fail

HMRC is explicit about what never counts: entertaining clients or suppliers, traffic fines and parking tickets, and anything with a dual personal purpose you can’t cleanly apportion. And remember the capital distinction — big-ticket items like vehicles and machinery usually go through capital allowances rather than being deducted as day-to-day expenses.

Cash basis or traditional?

Most sole traders with turnover under £150,000 can use the cash basis — recording income and expenses when money actually changes hands — which makes expense tracking simpler. If you’re on traditional accounting, you record on the invoice date instead. Either way, the same “wholly and exclusively” test applies.

How to claim

You claim expenses on your Self Assessment tax return, either as individual line items or as a single total for expenses under £1,000. Keep your records for at least five years after the 31 January filing deadline — HMRC can ask to see the evidence behind any claim. That annual return is changing, too: Making Tax Digital is phasing in quarterly digital updates for sole traders, so records kept through the year are about to matter even more.

How Lemon fits

Tag expenses by category as they happen — travel, office, advertising, professional fees — scan every receipt with OCR, and export the year’s breakdown when your Self Assessment is due. Every line on your return gets a receipt behind it, which is exactly what “wholly and exclusively” demands.

This article is general information, not tax advice. For your specific situation, talk to an accountant.

Download Lemon free on the App Store or Google Play — tag every allowable expense through the year so your Self Assessment takes an afternoon, not a week.