Key facts
- Trading allowance: £1,000 if expenses are lower, otherwise claim actual costs
- Simplified mileage: 45p/mile first 10,000 miles, then 25p/mile (FLAG: confirm on GOV.UK)
- Working from home flat rate: £10/month (25 to 50 hours), £18/month (51 to 100 hours), £26/month (101+ hours)
- Tax is paid on profit: income minus allowable expenses
- MTD digital records from 6 April 2026 above £50,000 qualifying income
See how expenses affect your bill in our sole trader tax guide, estimate tax with the Self Assessment calculator, and browse more UK finance guides.
How expenses reduce your tax
Self-employed people pay Income Tax and Class 4 National Insurance on profit, not on gross income. Profit is what is left after you deduct allowable business expenses. The more you can legitimately claim, the lower your taxable profit and your tax bill.
HMRC expects you to keep records that support each deduction: receipts, invoices, bank statements, and mileage logs where relevant. Good record keeping also makes your Self Assessment return quicker to complete and easier to defend if HMRC asks questions.
Allowable expense categories
Allowable expenses must be wholly and exclusively for your business, or a fair business share if there is mixed use. Common categories for 2026/27 include:
| Category | Examples |
|---|---|
| Office costs | Stationery, phone, software subscriptions, postage |
| Travel and accommodation | Train fares, fuel (if not using simplified mileage), hotels for business trips |
| Stock and materials | Goods you resell, raw materials, packaging |
| Staff costs | Salaries, subcontractor fees, employer NI if you employ someone |
| Premises | Rent, business rates, utilities, business insurance for premises |
| Marketing | Website costs, advertising, business cards, professional photography |
| Financial costs | Business bank charges, accountancy fees, professional indemnity insurance |
| Training | Courses that update skills for your current trade (not a new career) |
Use the income tax calculator to see how a lower profit figure changes your Income Tax, and the National Insurance calculator for Class 4 on self employment profits.
What you cannot claim
Personal living costs, everyday clothing, client entertainment, and fines or penalties are not allowable. If you use something for both business and personal reasons, only the business portion counts: for example, a mobile phone bill split by business call time, or home broadband by business use percentage.
The £1,000 trading allowance versus actual expenses
The trading allowance lets you deduct £1,000 from self employment income instead of listing individual expenses. It suits very small side incomes or micro businesses with low costs.
If your allowable expenses are below £1,000, claiming the allowance usually gives a larger deduction. If your expenses are higher, claim the actual costs instead. You cannot use the trading allowance and actual expense claims together for the same trade.
Simplified expenses (flat rates)
HMRC simplified expenses offer flat rates for some costs so you do not need to calculate every receipt. For 2026/27, the main options are:
| Method | Rate | Notes |
|---|---|---|
| Car and van mileage | 45p/mile first 10,000 business miles, then 25p/mile | FLAG: confirm on current GOV.UK simplified expenses page before publish |
| Motorcycles | 24p/mile | FLAG: confirm on current GOV.UK simplified expenses page before publish |
| Working from home | £10/month (25 to 50 hours), £18/month (51 to 100 hours), £26/month (101+ hours) | Monthly flat rate by hours worked at home. FLAG: confirm on GOV.UK before publish |
You can use simplified rates for some costs and actual expenses for others, but not both methods for the same type of cost in the same year.
Working from home in detail
If you work from home, you can use the simplified monthly flat rate based on hours worked at home each month, or claim a reasonable proportion of actual household costs such as heating, electricity, council tax, mortgage interest or rent, and broadband.
The actual costs method needs a fair split: for example, one room used as an office for set hours each week, or the percentage of floor space used for business. Simplified expenses are faster but may give a smaller deduction if your home costs are high.
Vehicles and equipment
For vehicles, choose simplified mileage or actual running costs (fuel, insurance, repairs, road tax) plus capital allowances on the vehicle itself. You must stick with your chosen method for that vehicle for as long as you use it in the business.
Smaller items such as tools, laptops, and phones can often go straight on the expenses list if they are used for the business. Larger equipment is usually claimed through capital allowances, often the Annual Investment Allowance, over time. Mixed-use assets need a business use percentage.
Cash basis versus traditional accounting
Most sole traders use cash basis accounting by default: you record income when you receive it and expenses when you pay them. That matches how many small businesses actually manage cash flow.
Traditional accrual accounting records income and costs when invoiced or billed, even if cash has not moved yet. It can suit businesses with significant stock, late payers, or lenders who want accrual accounts. You can elect to use traditional accounting if it fits your situation better.
Self Assessment Calculator 2026/27
Enter your self employment profit after expenses to estimate Income Tax, Class 4 NI, and payments on account.
Related Calculators
Frequently Asked Questions
You can claim allowable business costs such as travel, stock, premises, marketing, software, staff, and financial charges. These are deducted from your income, so you only pay tax on the profit that is left. Personal costs and everyday clothing cannot be claimed.
It is a £1,000 tax-free allowance for self-employment income. If your expenses are less than £1,000 you can claim the allowance instead, which is simpler. If your expenses are higher, claim the actual costs, but you cannot use both.
You can use the simplified monthly flat rate based on hours worked, or claim a fair share of your actual household running costs. The flat rate is £10 for 25 to 50 hours, £18 for 51 to 100 hours, and £26 for 101 or more hours per month. Confirm the current rates with HMRC.
Using simplified expenses, you can claim 45p per mile for the first 10,000 business miles in the year and 25p per mile after that, or 24p per mile for motorcycles. The alternative is to claim actual running costs plus capital allowances.
Only specific clothing such as a uniform, branded kit, or protective gear needed for the work. Ordinary clothing you could wear day to day is not allowable, even if you bought it for work.
Yes. Smaller items can be claimed as expenses, and larger equipment is usually claimed through capital allowances, often the Annual Investment Allowance. The asset must be used for the business, and mixed-use items are split to the business portion.
Cash basis records income and expenses when money actually changes hands and is the default for most sole traders. Traditional accounting records them when invoiced or billed. Cash basis is simpler for small businesses, traditional accounting can suit larger or stock-heavy ones.
Yes. Keep records of income and expenses to support your Self Assessment return, and keep them for at least five years after the 31 January filing deadline. From April 2026, Making Tax Digital brings in digital record keeping for those over the income threshold.
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James Hartley is a CIMA qualified financial analyst and Founder and Lead Financial Analyst at WhatsUK, with 8+ years in UK tax, payroll, and compliance. He builds every calculator on WhatsUK and authors all editorial content, ensuring every figure is verified against official HMRC sources before publication.
Sources & Official References
- GOV.UK: Expenses if you are self-employed- Allowable expenses list
- GOV.UK: Simplified expenses- FLAG: checklist URL returned 404 on 21 June 2026, re-find current page and confirm flat rates
- GOV.UK: Trading allowance
- GOV.UK: Cash basis
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.