Essential Expenses Sole Traders Should Know for Their Self-Assessment

Knowing which business expenses you can claim is one of the most effective ways to reduce your tax bill. These allowable business expenses are deducted from your income to calculate your taxable profit for Self-Assessment.

HMRC has one key rule: expenses must be “wholly and exclusively” for your trade, or the expense must be in the production of income.

You’re considered self-employed by HMRC if you run your own business, take responsibility for its success or failure, and work independently, setting your own hours, using your own equipment, invoicing clients, and paying your own taxes and National Insurance through self-assessment.

A crucial factor in determining employment status is the “master-servant relationship.” This refers to situations where a worker is under the control of another party, typically an employer, who dictates how, when, and where the work is done.

If an item is used for both personal and business purposes, only the business portion can be claimed, and you must be able to justify it. So, the best way is to apply a % for business purposes rather than claim the entire expense if the transaction was partly for personal use.

Let’s walk through the key expenses and considerations before filing your Self-Assessment.

1. Office, Property and Equipment

You can claim for:

• Office supplies: stationery, postage, printing, and small equipment.

• Home office costs: If you work from home, you can claim a portion of household bills. There are two methods:

  • Actual costs: Calculate the proportion of your home used for business (based on space and time) x actual expenses.

  • Simplified expenses: If you work from home 25+ hours/month, use HMRC’s flat rates >> Simplified expenses if you’re self-employed: Overview – GOV.UK

Note: These flat rates cover household running costs but exclude phone and internet bills, which must be calculated separately.

2. Phone and Internet Use

If you use your personal phone or internet for business, you can claim the business portion. HMRC expects a reasonable method to calculate this—e.g., if 40% of usage is business-related, claim 40% of the bill. Keep itemised bills or usage logs as evidence.

3. Travel Costs

• Again, you can claim actual travel expenses or simplified travel expenses (Simplified expenses if you’re self-employed: Vehicles – GOV.UK). But for both, you will need to keep a logbook to justify the business travel portion.

Claimable travel expenses include:

• Fuel and mileage

• Parking fees if you are going to a client or on a business trip

• Train, bus, taxi fares for transport to a client

• Accommodation for overnight business trips. Remember to only claim the business portion if you have extended your stay for personal reasons

You cannot claim for commuting between home and your regular place of work. Keep:

• Mileage logs
• Travel diaries
• Receipts for transport and accommodation

Tip: Diary your business trips if you know you might forget about them, and only do your tax returns once a year.

4. Clothing

You can claim for:

• Uniforms (Clothing with your business name or logo that serves as a uniform. Sewing a permanent logo or badge can help qualify it as a uniform.)

• Protective clothing necessary for your work. (Items required for health and safety or specific types of work.

• Examples: steel-toe-capped boots, high-visibility jackets, hard hats, gloves, chef’s whites, etc.)

Clothes that you wear every day, even if worn for work, are not allowable.

5. Staff Costs

If you pay employees or subcontractors, you can claim:

• Wages and salaries

• Bonuses

• Employer National Insurance contributions

• Pension contributions for employees

You must register for PAYE and run payroll if you employ staff. Please let us know if you have employed people, so that we can assist you in the process of setting up a payroll. We are not HR consultants, but we can help you with preparing the payroll every month.

6. Payments to Family Members

You can pay your spouse, partner, or children for genuine work done in your business. To claim this as an expense:

• The work must be real and necessary for business purposes

• Pay must be reasonable and reflect market rates.

• Keep records of hours worked, duties performed, and payments made.

Avoid overpaying or paying for work not actually done. HMRC may disallow the expense and impose penalties.

TIP: Remember the minimum wage and max hours that underage people can work.

7. Stock and Materials

You can claim for:

• Raw materials

• Goods bought for resale

• Packaging and delivery costs

8. Financial Costs

Allowable financial expenses include:

• Business insurance

• Bank charges on business accounts

• Interest on business loans (limited to £500/year if using cash basis accounting)

9. Marketing and Subscriptions

You can claim for:

• Advertising and promotional costs

• Social media advertising

• Website hosting and design

• Business directory listings

• Professional memberships and subscriptions (must relate directly to your trade)

10. Training Courses

You can claim for courses that update or refresh existing skills relevant to your business. Courses that teach new skills not related to your current trade are not allowable.

11. Pension Contributions

You can contribute up to 100% of your annual earnings, capped at £60,000/year, into a pension fund. Please let us know if you have made pension contributions so that we can include this in your self-assessment return.

12. Gift Aid Donations

Gift Aid is a UK government initiative that lets charities claim an extra 25p for every £1 you donate, without costing you anything more. This is because your donation is treated as having been made after basic-rate tax (20%) has been deducted.

Eligibility Requirements

To qualify for Gift Aid:

–            You must be a UK taxpayer.

–            You must have paid enough tax (Income Tax or Capital Gains Tax) to cover the amount the charity will reclaim.

–            You must complete a Gift Aid declaration for each charity when you donate.

So, if you have made any Gift Aid payments and you are a higher or additional rate taxpayer, please let us know so that we can include this in your self-assessment return.

13. What You Can’t Claim

You cannot claim:

• Personal expenses

• Capital items (unless via capital allowances)

• Expenses without a clear business purpose

• If using the £1,000 trading allowance, you cannot claim any other expenses

14. Documentation to Keep

HMRC requires sole traders to keep records for at least 5 years after the 31 January deadline of the relevant tax year. Keep:

• Receipts
• Invoices
• Bank statements
• Mileage logs
• Contracts
• Payroll records
• Pension contribution records
• Gift Aid documentation

Making Tax Digital (MTD)

MTD is HMRC’s initiative to modernise the UK tax system by requiring digital record-keeping and online submissions using compatible software.

Current implementation dates include:

• Income above £50,000 from April 2026
• Income above £30,000 from April 2027
• Income above £20,000 from April 2028 (subject to legislation)

Under MTD for Income Tax, sole traders must:

• Keep digital records
• Submit quarterly updates
• File an annual declaration through compatible software

HMRC states that MTD can help reduce errors and provide more up-to-date tax information.

Final Thoughts on Essential Expenses for Sole Traders

Understanding the essential expenses for sole traders can help reduce your taxable profit while staying compliant with HMRC requirements. Keeping accurate records, claiming eligible allowable business expenses, and using HMRC simplified expenses where appropriate can make Self-Assessment easier and support your claims if queried by HMRC.

We are here to help, so if you have read anything in this blog and want to know more, please don’t hesitate to contact us.