Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
Allowable expenses reduce your taxable profit as a sole trader. This guide covers the most common categories — including home office, mileage, equipment and phone — with the rules for each.
HMRC's core test for an allowable expense is that it must be incurred wholly and exclusively for the purposes of the trade. If an expense has a dual purpose — partly personal, partly business — only the business portion is deductible. If the purposes cannot be separated (such as a meal eaten primarily because you are hungry, not primarily for a business reason), none of it is deductible.
The wholly and exclusively test is applied to the purpose at the time you incur the expense, not the outcome. Sending a proposal that leads to nothing is still a deductible business expense if it was genuinely incurred for business purposes.
There are also specific HMRC simplified expense flat rates for some common categories, such as home office use and mileage. Using the flat rate is optional — you can use actual costs if they are higher — but the flat rate avoids the need to keep detailed receipts for those categories.
If you work from home, you can claim either: (a) HMRC's flat rate — £10/month for 25-50 hours worked per month, £18/month for 51-100 hours, £26/month for 101+ hours; or (b) actual costs apportioned by business use of your home — typically the business proportion of heating, electricity, and broadband, based on the number of rooms used and hours worked.
The flat rate method is simpler and avoids calculations. At 101+ hours per month, you can claim £26/month = £312/year without receipts. Actual costs often exceed this for anyone running a business from a dedicated room.
Note: if you claim actual costs and apportion part of your home's running costs to business, you should be aware of potential capital gains tax implications on a proportion of any future home sale. This does not apply if you use the flat rate. The risk is small but worth knowing if you own the property.
If you use your personal vehicle for business, you can claim either: (a) the HMRC mileage rate — 45p per mile for the first 10,000 business miles in the tax year, 25p thereafter — or (b) actual running costs apportioned by the business percentage of total miles driven.
Most sole traders use the simplified mileage rate, which covers fuel, servicing, insurance, and vehicle depreciation. You cannot claim the purchase cost of the vehicle separately if you use the mileage rate. You must keep a mileage log.
If you switch from mileage rate to actual costs (or vice versa) for a particular vehicle, you must stick with one method for that vehicle for the life of its use in the business. Commuting to a regular workplace is not a business journey and cannot be claimed.
Equipment used in the business is deductible, either through the Annual Investment Allowance (AIA) for full deduction in the year of purchase, or through capital allowances over multiple years. Most sole traders use AIA, which allows up to £1,000,000 of plant and machinery to be deducted in full in the year purchased.
Phone costs can be claimed as follows: if you have a separate business phone, 100% of the cost is deductible. If you use a personal phone for business, only the business proportion of calls, data, and contract cost is deductible. If you cannot separate personal and business use, you can claim a reasonable estimate.
Professional subscriptions (trade body memberships, professional magazine subscriptions relevant to your work) are deductible if they are directly relevant to your trade. General business subscriptions such as software used in the business are also deductible.
Yes. Either using HMRC's flat rate (up to £26/month for 101+ hours) or actual costs apportioned by business use. The flat rate is simpler and avoids capital gains tax implications on your home.
45p per mile for the first 10,000 business miles, then 25p per mile. This covers all vehicle running costs — you cannot also claim fuel or servicing separately if using the mileage rate.
A dedicated business phone can be claimed 100%. For a personal phone with some business use, only the business proportion is deductible — typically based on business call minutes or data as a percentage of total usage.
A capital allowance that lets you deduct the full cost of most plant and machinery (tools, computers, vehicles) in the year of purchase, up to £1,000,000. Most sole traders use this rather than depreciating equipment over several years.