10 Business expenses sole traders should claim to reduce their tax bill

As a sole trader, everything you earn from running your own business which surpasses the personal allowance threshold (£12,570 for the tax year 2025/26) is subject to income tax, but what about all the money that you have had to spend? We’re talking about your business expenses, and this is where knowing what to claim for, and how, can exponentially reduce your tax bill. Our accountants explain the nuanced rules when it comes to correctly claiming for allowable business expenses so that you don’t miss out, as well as ensure you don’t make mistakes claiming for disallowable expenses that’ll get you into trouble with HMRC.

What is a business expense?

Business expenses are any expenditure that you incur during the course of running your business. They fall into one of two possible categories – revenue or capital. Capital expenses are usually much larger, are assets that are used long-term, and often seen as an investment such as the machinery or equipment you might need. Usually capital expenses are only tax deductible where they qualify for capital allowances, but if you’re using the cash basis accounting method to complete your bookkeeping then you may be able to claim for it in the same way as revenue expenses.

Revenue expenses are often cheaper, are items which are consumed more quickly, and seen as a necessity for the day-to-day operations such as postage, ink cartridges, or food ingredients. Revenue expenses are tax deductible where they are “wholly and exclusively” used for the purpose of running your business.

So, if you a run a business selling handmade greeting cards, you might have to buy a computer in order to be able to access your online shop or website, take orders and payments, and respond to email queries. The computer would be classed as a capital expense. You would then need materials in order to produce your greeting cards such as card, envelopes, stencils, and other supplies – these would be classed as revenue expenses.

Where you use the computer for some personal use, such as going online to order a food shop or booking a holiday then this may mean it is only partially tax deductible or disallowed all together. We’ll explain this in more detail below.

Why you should claim all business expenses possible

It’s particularly worthwhile for sole traders to claim all allowable business expenses because your profits are fully subject to income tax and national insurance (NI). This is unlike operating through a limited company which allows for directors to take advantage of lower dividend tax rates as well as the opportunity to reduce NI liabilities. By claiming business expenses, you effectively reduce your profits and therefore also the tax that it would attract.

It’s also important to claim for your business expenses as accounting for these will enable you to accurately calculate your profit margin. This helps you understand how your business is performing because relying on your turnover or revenue as a measure of success will never provide a reliable indication of whether your business is making you money.

When you should skip on claiming business expenses

Although we would ordinarily recommend that most sole traders should claim for all their business expenses, there are some circumstances where it could be more beneficial to skip claiming business expenses and claim the trading allowance instead. The trading allowance offers up to £1,000 in tax relief to anyone with miscellaneous earnings. It can often be advantageous to those who are earning some money on the side or as a hobby but receive a majority of their income through employment, or beneficial to those with very little business expenditure. It is important to be aware that you cannot claim both the trading allowance as well as your business expenses, so we would advise to skip on claiming business expenses where these are no more than £1,000.

To explain how the trading allowance works we’ve provided example scenarios to illustrate. Say you run a dog walking business in your local neighbourhood as a hobby to earn some extra money. Your only business expense is your insurance which amounts to £75 for the year. Your total earnings from dog walking for the year are £3,900. By claiming the trading allowance, you would be able to deduct £1,000 and pay tax at your personal income tax rate on £2,900. If you were instead to claim your £75 business expense, you would have to pay tax on £3,825.

On the other hand, you run a kids’ arts and crafts club at your local community centre once a week. You also make £3,900 a year but your expenses to rent out the community centre and provide the materials are much higher at £1,950 a year. If you were to claim the trading allowance, you would again only pay tax at your personal income tax rate on £2,900. However, in this instance, it would be more beneficial to claim your business expenses as you would be taxed on £1,950 instead.

So, what business expenses can I claim?

Whilst we’ve explained the difference between capital expenses and revenue expenses, it can certainly still be difficult to determine which businesses expenses are “allowable” and therefore tax-deductible, and those which are not. To help, we’ve compiled a list of the top 10 business expenses sole traders miss claiming on:

1. Working from home costs

Many sole traders are already aware that you’re able to claim business expenses when working from home, but you need to be aware of the rules on how to do this. You can either claim HMRC’s flat rate which offers £10 per month if you work 25 – 50 hours a month from home, £18 per month if you work between 51 – 100 hours a month from home, or a maximum of £26 per month where you work over 101 hours a month from home. Alternatively, you’re able to claim a proportion of your household bills but HMRC doesn’t provide a formula for how you should calculate this. However, it is generally acceptable for you to use a fair and reasonable percentage estimate. For example, say you run a piano lesson business out of your living room at home. Your living room is roughly 15% of your house and you use it about 30% of time for your business and the rest is for personal use. You would therefore calculate 15% of your household bills and then use 30% of that as a claim for business expenses.

When it comes to your mortgage, you can still claim a portion of this in the same way as above, however it can only be applied to your mortgage interest payments and not the capital payments. If you have home repairs, so long as it is related to business use, you’ll also be able to claim a percentage in the same way. So, if your upstairs bathroom had a leak which damaged your living room walls, a portion of the cost to redecorate the living room could be claimed. The cost of repairing the plumbing in your bathroom however could not be claimed as it is not used in any way for your business.

2. Mobile phone costs

There are two different ways you can claim your mobile phone costs as a business expense. The simplest solution is to buy a dedicated work phone that you only use for work calls. The phone, as well as monthly phone bill, is an allowable expense. However, this might not be the most practical solution for you. If you only have one mobile phone that you use for personal calls as well as business calls, then you can claim for the fair and reasonable portion of costs that relate to your business or if you have an itemised phone bill, you could claim for the exact amount spent on business calls.

3. Mileage and car maintenance costs

Mileage is also a common business expense that most sole traders are aware of, but did you know that the miles travelled for your standard commute are not an allowable expense? If you need to regularly travel to an office, factory, warehouse, or even outdoor space such as a farm where you would ordinarily work from, then the mileage to and from the venue from your home is not tax-deductible. Whereas travel to meet with clients, suppliers, or to work events would be.

You can choose between two methods of calculating and claiming for business mileage expenses. Both methods will require you to keep accurate records of your business and personal mileage. The simpler method is to claim for HMRC’s flat rate which offers 45p per mile for the first 10,000 miles travelled in a tax year, then 25p for every mile travelled thereafter.

Alternatively, you can claim for a portion of the cost (based on your business mileage compared with the overall total mileage of your vehicle) towards the running and maintenance of your vehicle. This is often where sole traders miss out as you can claim a portion of:

• Fuel
• MOT
• Servicing
• Repair costs
• Vehicle insurance
• Breakdown cover
• Parking fees (where this is not associated with your regular place of work)

However, be aware that the one cost that cannot be claimed as a business expense is any parking fines or speeding tickets you might incur!

4. Clothing and laundry expenses

Before getting too excited, you cannot claim for the cost of buying a new wardrobe! Nonetheless, if your work requires you to wear a uniform, safety/protective clothing, or a costume (such as if you worked as a party entertainer or actor) then the cost of these items will be an allowable business expense.

HMRC are strict with the term “uniform” and clearly draw the line when it comes to everyday clothing or workwear. For example, if you are required to wear non-slip shoes for work, this would not be a tax-deductible business expense because these could be a variety of different shoes that you could also use for everyday wear. On the other hand, if you’re required to wear steel toe cap shoes, this would come under protective clothing that would not be considered as everyday normal wear and therefore qualify as a business expense.

Furthermore, even where you wear branded clothing as a uniform, this may not necessarily qualify. For example, you work as a private swim coach and choose to wear branded sportwear with your business logo printed as a uniform. However, because you are not strictly required to do so as you would still be able to fulfil your job without the branded clothing, this would not qualify. Nevertheless, we would recommend that you instead claim this as a marketing cost which is an allowable business expense.

Not only is your uniform or protective clothing an eligible expense, but in some cases, the cost of cleaning it can also be deducted from your business profits. Where you need to take your uniform to be professionally cleaned such as at the fry cleaners, then be sure to keep your receipts and claim for the cost of this as business expenditure.

5. Marketing and promotion

We’ve already hinted at this in the point above if you managed to spot it, but you can claim a wide range of marketing costs as an allowable business expense even when you work as a sole trader. This can be anything from hosting and building a website, paying for adverts whether that’s digital or print, getting business cards and flyers made, attending networking events and business expos, and even the cost of branded clothing which you may choose to wear as a uniform.

Whilst almost all legitimate marketing costs are fully tax-deductible, one common marketing expense that catches most sole traders out is business entertainment. Business entertainment can be as simple as offering to buy a client a coffee so that you can chat to them about your services and provide a quote, to something extravagant such as a full day’s hospitality at the Grand National races. Although you may see these enticements as key to closing a deal and winning new customers, HMRC sees providing any kind of hospitality that includes food, drink, accommodation, and entertainment as business entertainment expenses which are not tax-deductible.

6. Health insurance

Health insurance is an essential to so many sole traders, especially if your entire income is dependent upon you being able to work. Unexpected long-term illness or injury can cause major difficulties, so it’s certainly beneficial to protect against the impact of these wherever possible. Purchasing health insurance cover can help you get back on your feet much quicker, but you must pay attention to take out business health insurance as opposed to personal health insurance. Only business health insurance is a tax-deductible business expense you can claim for.

Whilst business health insurance won’t offer help towards any loss of earnings, you could also consider taking out income protection insurance. Just be aware that the cost of this type of insurance is not an allowable business expense, but any payments you receive from your cover are tax-free.

7. Training and professional development

From training days to online courses and seminars, the cost of improving or keeping up to date with the latest knowledge and skills you need for your current job is an allowable business expense for sole traders. So, if you work as a self-employed au pair and you take a refresher course on first aid for children, this would be a tax-deductible business expense.

Furthermore, HMRC allows for some extension and leeway when it comes to training and professional development costs. Where you need training on supplementary skills that are directly related to your current role, then you’ll also be able to claim for these. For example, if you needed to take an online tutorial to learn how to complete your self-assessment tax return, then this is likely to be accepted. 

However, if you are diversifying your skill set or training for a change in career direction, then these are considered as capital expenses rather than a tax-deductible business costs. So, using the same example of a self-employed au pair, if you were to take driving lessons to add to your skill set and make you more appealing to clients, this would not be tax-deductible. Similarly, if you wanted to retrain as a nutritionist, although there may be some uses to your existing position, it would be more likely to be seen as a new skill and therefore could not be claimed for.

8. Bank loan interest or overdraft interest

Sole traders often miss out on claiming for bank loan interest payments or overdraft interest payments as business expenses which could help you reduce a significant amount in income tax. However, before enthusiastically deducting it from your tax return, make sure you are doing so correctly!

Only bank loan interest or overdraft interest that is wholly and exclusively incurred for the purpose of running your business is an allowable business expense. Any personal loans or overdrafts cannot be claimed. So, if you took out a loan to buy new equipment or went into your overdraft due to temporary cash flow issues then this qualifies as a business expense. Getting a personal loan to extend your house and then using any leftover cash to upgrade your business website however would not.

It’s very important that you keep accurate records when claiming interest as a business expense. The simplest solution to this is to have a business bank account which will help you demonstrate a clear distinction between business expenses and personal expenses, although this is not mandatory for sole traders.

9. Business services

Business services cover a wide range of support from experts and professionals that you might need. If you incur any costs seeking legal advice, tax or accounting services, or even HR and IT support, then you’ll be able to deduct this from your income as a business expense. Again, these must be for the purpose of running your business only and you should keep invoices and receipts as proof of expenditure.

Other services such as cleaning will not be allowable if it’s domestic cleaning for your own home, even if you work and run your business from home. It will only be deductible if it’s for commercial premises such as a shop or office.

10. Bad debts

Last but not least, bad debts are a legitimate business expense that sole traders can claim for so long as you are using the accruals accounting method to complete your bookkeeping. Using the accruals accounting method means that you record income as you invoice for business, not necessarily when you receive payment. If a customer refuses to pay and you’re unable to recover the costs by reasonable means, then you can write this off on your tax return.

If you use the cash accounting method, then you will be unable to claim bad debts as a business expense because you would have never included the unpaid invoice as income in the first place. If you’re unsure which accounting method is most suitable for your business, be sure to speak to one of our accountants for advice.

What happens if you claim for an expense that is not allowable?

If you happen to have claimed for a business expense that is not tax-deductible HMRC will disallow it when they review your tax return. This will result in an adjustment to your taxable profits. Not only that however, depending on HMRC’s assessment and conclusion they can issue fines as well as charge interest on the unpaid tax due. Should they have strong reason to believe that you deliberately submitted an incorrect tax return, more serious penalties can be issued. To avoid making mistakes on claiming for disallowable sole trader expenses, make sure you refer to our article on 10 business expenses sole traders can’t claim.

Get help with claiming your business expenses

Claiming for all your allowable business expenses is one of the most effective ways to reduce your tax bill as a sole trader, but making sure you don’t miss any, as well as ensuring you have claimed for them correctly, can be challenging. Opting to use expert accountants can streamline the process, making it quicker and fuss-free for you to complete your tax return. You’ll also get peace of mind that you’re not overpaying any tax that you don’t need to. To get help with claiming your business expenses and completing your self-assessment tax return, get in touch for a quote today.