Running a business as a sole trader in the UK offers flexibility, autonomy, and the chance to build something truly your own. But with that freedom comes the responsibility of managing your finances wisely, especially when it comes to tax.
Knowing what expenses you can legally claim is not only essential for staying compliant with HMRC but also a powerful way to boost profitability.
In 2025, with digital tools making bookkeeping easier and HMRC tightening its oversight through Making Tax Digital (MTD), understanding allowable expenses has never been more important.
This guide is tailored to help sole traders in the UK navigate the complex but crucial area of expense claims. Whether you’re a designer, tradesperson, freelancer, or consultant, you’ll find clear answers here.
What is a Sole Trader in the UK?
A sole trader is a self-employed individual who owns and operates their business personally.
It’s the simplest and most common business structure in the UK. According to HMRC, over 3.5 million people were registered as sole traders in 2024, and the number continues to grow.
Characteristics of a Sole Trader
- Full personal responsibility for profits and losses
- Direct control over business decisions
- No need to register with Companies House, just with HMRC for Self Assessment
- Pays Income Tax and National Insurance on profits
Unlike a limited company, a sole trader does not form a separate legal entity. This means there’s no legal distinction between the individual and their business, and therefore the individual is personally liable for any business debts.
Being a sole trader is ideal for those starting out or running small to medium-sized operations without complex corporate structures. But it also means being fully responsible for managing tax affairs, including tracking and claiming expenses correctly.
What Expenses Can I Claim as a Sole Trader in the UK?
As a sole trader, you can deduct certain business expenses from your profits before calculating how much tax you owe. These are called allowable expenses and they’re strictly governed by HMRC.
To be eligible:
- The expense must be wholly and exclusively for the business
- It must be reasonable, directly related to your work
- Personal expenses cannot be claimed
Failing to follow HMRC’s rules can result in underpayment or overclaiming, both of which might lead to fines or audits.
Examples of Common Claimable Expenses
- Office and home-based costs
- Travel and vehicle usage
- Equipment and software
- Marketing and advertising
- Insurance and legal fees
- Staff wages or subcontractor payments
- Professional training and memberships
Each category has specific rules and exceptions, so it’s crucial to understand what qualifies in detail.
How Does HMRC Define Allowable Expenses?
HMRC uses the term “wholly and exclusively” to describe expenses that can be claimed. This means the cost must be incurred purely for business purposes.
If there’s any personal use, the expense must be split accordingly, and only the business portion is deductible.
For example:
- Buying a laptop used 60% for business allows you to claim only 60% of its cost
- Driving to a client site is claimable, but commuting to your regular office is not
Categories of Allowable Expenses
- Day-to-day running costs
- Administrative and office supplies
- Staff and subcontractor payments
- Premises and utility costs
- Financial and legal services
- Training and professional development
- Depreciating assets (claimed via capital allowances)
To remain compliant, sole traders should keep receipts, contracts, bank statements, and mileage logs. HMRC expects clear and accurate records, especially under Making Tax Digital regulations.
Which Office and Working from Home Costs Are Deductible?
Many sole traders operate from home, especially in digital or service-based industries. If this applies to you, a portion of your household expenses can be claimed as business costs.
Two Ways to Claim Home Office Expenses in 2025
1. Simplified Expenses (Flat Rate Method)
- 25–50 hours/month: £10 per month
- 51–100 hours/month: £18 per month
- 101+ hours/month: £26 per month
2. Actual Costs (Apportioned Method)
Claim a percentage of the actual costs based on:
- Number of rooms used
- Hours of use per day/week
- Type of utility or service
Claimable Home Office Costs
- Mortgage interest or rent
- Gas, electricity, and water bills
- Council tax
- Internet and telephone bills
It’s vital to keep detailed records and apply reasonable calculations. Overestimating usage can lead to red flags with HMRC.
Are Travel and Vehicle Costs Claimable as a Sole Trader?
Travel is one of the most commonly claimed categories for sole traders. If you use a vehicle or public transport for business purposes, these costs are generally deductible.
Vehicle Expenses in 2025
1. Simplified Mileage Method
- First 10,000 miles: 45p per mile
- Additional miles: 25p per mile
2. Actual Vehicle Costs (Proportional Use)
- Fuel and oil
- Vehicle insurance
- Road tax
- Maintenance and repairs
You must keep a mileage log or trip diary to back up any claims made under either method. Commuting from home to a permanent workplace isn’t allowed as a deductible cost, but trips to temporary locations or meetings are.
Other Travel-related Costs
- Parking fees
- Public transport fares
- Accommodation for overnight business stays
- Meals during work-related travel (reasonable amounts)
Tolls, congestion charges, and business-related flights are also claimable with valid proof.
What About Phone, Broadband, and Utility Bills?
Phone and internet costs are partially or fully claimable depending on their use. HMRC expects a clear breakdown of business and personal use.
For personal devices used for work:
- Claim a proportion of your monthly bill
- Use itemised bills to support claims
For business-only contracts:
- Claim 100% of the cost
Utility bills if working from home:
- Electricity and gas
- Water supply
- Landline and internet
These are part of home office expenses, and you must apply a realistic portion based on time and space used. Avoid rounding up or claiming entire bills without evidence, this is a red flag during tax reviews.
Can I Deduct Business Insurance and Professional Fees?
Yes, insurance and professional services are necessary expenses in many industries and are fully deductible.
Allowable Insurance Types
- Public liability insurance
- Professional indemnity insurance
- Employers’ liability insurance (if you employ staff)
- Office or equipment insurance
Allowable Professional Services
- Accounting and tax preparation
- Legal advice related to business operations
- Business consultancy
If a legal cost relates to acquiring a property or other assets, it may need to be treated as a capital expense. Always consult with an accountant to classify large or irregular costs correctly.
What Types of Marketing and Advertising Costs Are Allowable?
Marketing is a crucial tool for attracting clients and growing your business. Fortunately, HMRC allows sole traders to claim most promotional and advertising costs.
Examples of Deductible Marketing Costs
- Social media campaigns (Instagram, Google Ads, LinkedIn)
- Website hosting and design
- SEO services and copywriting
- Printing leaflets, brochures, or business cards
- Sponsorships that promote your business
- Email marketing tools (e.g., Mailchimp subscriptions)
However, gifts and entertainment don’t qualify unless they carry branding and are inexpensive (under £50). Anything considered client entertainment, such as dinners or tickets, is strictly disallowed.
Are Staff Wages and Subcontractor Payments Eligible?
If you hire staff or work with freelancers and subcontractors, their payments are tax-deductible. These costs must be documented with payslips, contracts, or invoices.
Claimable Costs
- Salaries and hourly wages
- National Insurance contributions
- Workplace pension contributions
- Temporary staffing agency fees
- Freelancers and consultant payments
Make sure subcontractors are not misclassified employees. If HMRC determines they are operating under your control like staff, it may trigger additional tax responsibilities.
Using a payroll service or accounting software can simplify reporting and ensure full compliance.
Can I Claim for Training, Subscriptions, and Professional Development?
Continued learning and professional growth are vital to business success and, thankfully, many related costs are allowable.
Deductible Training Expenses
- Courses that refresh or enhance existing skills
- Software training
- CPD (Continuing Professional Development) programs
Allowable Subscriptions
- Trade magazines and industry journals
- Memberships in professional organisations (e.g. CIPD, FSB)
- Licences required for your profession
Courses that help you expand your current capabilities are fine. However, courses that qualify you for a completely new career are not deductible.
What’s the Rule on Equipment, Tools, and Capital Allowances?
When purchasing tools, equipment, or machinery for your business, you may be entitled to capital allowances rather than direct expense claims.
In 2025, the Annual Investment Allowance (AIA) is: £1 million per year
This means you can claim up to £1 million in capital investments (like computers or tools) as 100% deductible in the same tax year.
Claimable Items
- Laptops, tablets, and office furniture
- Power tools, cameras, and machinery
- IT software with long-term use
Larger items may also qualify for writing down allowances if the AIA limit is exceeded or not applicable.
How Should a Sole Trader Keep Records for Expense Claims?
Accurate recordkeeping is essential and legally required by HMRC. In 2025, with Making Tax Digital in effect, digital records are encouraged if not mandatory.
Records you must keep:
- Invoices and receipts
- Mileage logs and travel diaries
- Contracts and agreements
- Utility bills and bank statements
You must retain these for at least five years after the 31 January submission deadline for the tax year. Using platforms like Xero, Crunch, or Coconut simplifies this and helps you stay compliant.
What Common Mistakes Should Sole Traders Avoid When Claiming Expenses?
Making incorrect claims or poor recordkeeping can lead to fines or penalties. In 2025, HMRC’s systems are smarter, and they detect inconsistencies easily.
Common Errors
- Claiming personal expenses (e.g., entire utility bills or personal meals)
- Overestimating business use percentages
- Not keeping proof or misplacing receipts
- Using incorrect mileage rates
- Missing deadlines or forgetting to update records
If unsure, it’s wise to consult a qualified accountant or use HMRC-accredited software.
Conclusion
Claiming the right expenses as a sole trader not only keeps you compliant with HMRC rules but also helps reduce your tax liability and increase profitability.
From travel and training to equipment and utilities, many costs associated with running a business can be deducted. However, it’s vital to understand what’s allowed, keep detailed records, and avoid common mistakes.
In 2025, being proactive and accurate with your financial management is key. Stay organised, invest in good tools or expert advice, and use this guide to ensure you’re claiming everything you’re entitled to, and nothing you’re not.
FAQs
What are allowable expenses for a UK sole trader?
Allowable expenses include business costs like travel, office supplies, insurance, and professional services that are solely for business use.
Can a sole trader claim home office expenses?
Yes, either via HMRC’s simplified flat rate or actual cost method depending on working hours and room usage.
Is petrol a deductible expense for self-employed?
Yes, petrol used during business journeys is deductible either via a mileage rate or actual usage cost.
Can I claim phone bills as a sole trader?
Yes, but only the business portion of the phone bill. Use itemised statements if available.
Are training courses tax deductible?
Yes, as long as the course enhances existing skills relevant to your trade or profession.
Do I need receipts for every expense I claim?
Yes, HMRC requires receipts or other proof for all claimed expenses to validate your tax return.
How long should I keep business records?
You must retain records for at least five years after the 31 January deadline following the relevant tax year.