Sole Trader Expenses 2026/27 — Allowable Costs & Claims

As a sole trader in 2026/27 you pay income tax and Class 4 National Insurance on your profits — your sales minus your allowable business expenses — so every legitimate claim directly shrinks your bill. HMRC's core test is that an expense must be wholly and exclusively for business use; a cost with any personal purpose is disallowed, and genuinely mixed items must be apportioned. The personal allowance is £12,570, the basic rate band is £37,700, and Class 4 NI runs at 6% (2% above £50,270). Model your exact position with the Self-Employed Tax Calculator→.

This guide covers the simplified flat rates for working from home and driving, the line between day-to-day costs and capital equipment, the main categories HMRC accepts, and how to report everything on your Self Assessment return.

Simplified Expenses — Home and Mileage

The simplified rates replace the need to apportion certain costs: the home rate is an alternative to claiming the relevant proportion of household costs, while the vehicle rate covers the vehicle costs included in the simplified method. You cannot claim the simplified home rate and actual home costs for the same period, or simplified mileage and actual vehicle costs for the same vehicle. Most traders find the flat rates simpler, but if actual costs are unusually high the actual method can pay more. Keep an hours log or mileage record either way, because HMRC can ask for evidence.

Allowable vs Non-Allowable Spending

Day-to-day costs you can deduct: office rent, rates and storage; business travel, hotels and fares; staff wages and pension contributions; advertising, website hosting and domain names; stationery, postage and printing; business bank charges and loan interest; professional fees for your accountant or solicitor; business insurance; training that improves skills you already use; tools and equipment; phone and internet used for the business; protective clothing and trade uniforms. Business gifts and hospitality have specific restrictions, so check the exact item and purpose rather than applying a blanket allowance.

Costs HMRC will disallow: client entertaining; fines and penalties; ordinary clothing such as suits and plain shoes; personal groceries and gym memberships; commuting between home and a fixed workplace; the capital cost of a car (covered by mileage instead); political donations; and anything bought mainly for personal enjoyment. When an item has both uses — a laptop used half for the business, a phone bill split 60/40 — you claim only the business proportion and keep a note of the basis.

Capital vs Day-to-Day Costs

Day-to-day expenses are deducted under the cash-basis or accrual rules that apply to the business. Capital purchases — laptops, vans, machinery and furniture — are a different category: relief is normally given through capital allowances rather than an ordinary expense deduction. The Annual Investment Allowance gives 100% relief on qualifying plant and machinery up to £1 million, subject to the rules and accounting period. Land, buildings and cars generally do not qualify for AIA; cars and other assets may instead fall under different capital-allowance rules. Do not assume that every van, tool or mixed-use asset receives the same treatment.

Worked Examples

Example 1 — Freelance designer: Nina has £24,000 of sales and claims £6,000 of expenses — software subscriptions, the £936 home flat rate, accountant fees, insurance and 2,000 business miles at 45p. Her profit is £18,000. Income tax applies to £5,430 (the amount above the £12,570 Personal Allowance) at 20%, giving £1,086; under the simplified 2026/27 assumption, Class 4 NI applies to £5,430 above the £12,570 lower-profits limit at 6%, or about £326. Total Income Tax and NI is about £1,412 before other reliefs or adjustments.

Example 2 — Electrician: Tom has £60,000 of sales and claims £18,000 — van mileage of 10,000 miles at 45p (£4,500), tools and PPE claimed via the AIA, insurance, training and an accountant. His profit is £42,000. Income tax is 20% of £29,430 (profit above the allowance) = £5,886; under the simplified 2026/27 assumption, Class 4 NI is 6% of the £29,430 above the £12,570 lower-profits limit, or about £1,766. Total Income Tax and NI is about £7,652 before other reliefs or adjustments.

In both cases the tax bill falls only because the expenses were claimed — every £1 of allowable cost saves a basic-rate taxpayer 20p of income tax plus 6p of Class 4 NI, and a higher-rate trader 46p in total.

Apportioning Mixed-Use Costs

HMRC accepts a reasonable split when an item serves both business and private purposes, but the basis must be defensible. A laptop used 60% for client work and 40% privately may support a 60% claim; a phone used one day a week for business needs evidence that the split reflects the actual use. The simplest evidence is a usage log kept for a representative period, then applied consistently for the year. Common apportionments include rooms used for work out of total rooms, business mileage out of total mileage, and business calls out of total call minutes. A 100% claim on a clearly shared item is unlikely to be accepted. When in doubt, claim the lower defensible figure and keep the basis on file.

Recording and Reporting

The golden rule is that a claim without a record is a claim that may fail under challenge. Save digital receipts or photos, keep a mileage log with dates, destinations and business purpose, and retain bank and credit-card statements. You report sales and expenses on the self-employment pages of your Self Assessment return. Making Tax Digital for Income Tax is being phased in by qualifying income thresholds, so check whether and when it applies to you rather than assuming every sole trader has the same digital duty. For a 2026/27 return the online deadline is 31 January 2028, and qualifying pre-trading costs may be treated as incurred on the first day of trading.

Frequently Asked Questions

Evidence and decision checks

A reliable sole trader expenses 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Evidence and decision checks

A reliable sole trader expenses 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Work out your own tax and NI with the Self-Employed Tax Calculator→, then read the Trading Allowance guide to compare the £1,000 flat deduction with itemised expenses, and the Side Hustle Tax guide if you are just starting out.

Official sources

• GOV.UK: expenses if you are self-employed
• GOV.UK: simplified expenses for sole traders
• GOV.UK: Income Tax rates and allowances
• GOV.UK: National Insurance rates and allowances
• GOV.UK: simplified home-working expenses
• GOV.UK: simplified vehicle expenses
• GOV.UK: Annual Investment Allowance
• GOV.UK: Making Tax Digital for Income Tax

These GOV.UK sources are the official references for allowable expenses, simplified home and vehicle costs, tax and National Insurance rates, capital allowances and MTD considerations discussed here.