An expense is allowable if it is incurred wholly and exclusively for the purposes of the trade. That is the whole test. Everything else — the category lists, the flat rates, the arguments about laptops and lunches — is an application of it.
Two things follow that trip people up. First, “wholly and exclusively” does not mean “mostly” — where a cost has both business and private use you claim only the business proportion, on a defensible basis. Second, claim the £1,000 trading allowance and you cannot claim expenses or capital allowances at all.
The categories HMRC recognises
| Category | Examples |
|---|---|
| Office costs | Stationery, phone bills, printing, postage |
| Travel | Fuel, parking, train, bus, tram, air and taxi fares |
| Clothing | Uniforms, protective clothing, costumes for actors and entertainers |
| Staff | Salaries, subcontractor costs, employer NIC, pension contributions |
| Reselling goods | Stock, raw materials, direct production costs |
| Financial | Insurance, bank charges, interest on business loans |
| Premises | Heating, lighting, rent, business rates, cleaning |
| Advertising and marketing | Newspaper and directory ads, mailshots, free samples, website costs |
| Training | Courses that keep existing skills current |
| Legal and professional | Accountants, solicitors, surveyors, architects — business purposes only |
Vehicles and travel
Allowable: vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle tax licence fees, breakdown cover, train, bus, tram, air and taxi fares, hotel rooms, and meals on overnight business trips.
Not allowable: non-business driving or travel costs, fines or penalty charges, and travel between home and work. Commuting is never a business expense, however inconvenient the commute.
You claim either actual running costs or the mileage flat rate, not both for the same vehicle. Once you use the flat rate for a vehicle you must keep using it for as long as that vehicle is in the business.
Simplified expenses: the 2026/27 flat rates
Simplified expenses are HMRC flat rates that replace working out actual costs. They are open to sole traders and partnerships without corporate partners — not limited companies.
Mileage. The car and goods vehicle rate rose on 6 April 2026, and it is now law rather than an announcement: the Taxation (Energy and Vehicles) Act 2026 (c. 26), s.2 substitutes 55p for 45p in ITTOIA 2005 s.94F(2)–(3), with effect for 2026/27 onwards.
| Vehicle | 2026/27 | Before 6 April 2026 |
|---|---|---|
| Cars and goods vehicles, first 10,000 business miles | 55p | 45p |
| Cars and goods vehicles, above 10,000 miles | 25p | 25p |
| Motorcycles | 24p | 24p |
Anything quoting 45p for 2026/27 is out of date. Example: 12,400 business miles = (10,000 × 55p) + (2,400 × 25p) = £5,500 + £600 = £6,100.
You can claim parking and other travel — train fares, for instance — on top of the mileage rate. You cannot use the flat rate for a vehicle you have already claimed capital allowances on.
Working from home. Only available if you work 25 hours or more a month from home.
| Hours of business use per month | Flat rate per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
The flat rate does not cover telephone or internet — claim the business proportion of those separately. Example: 10 months at 40 hours and 2 months at 60 hours = (10 × £10) + (2 × £18) = £136.
Living at your business premises. For guesthouses, B&Bs and small care homes. You total the premises expenses, then subtract a flat amount for private use.
| Number of people living there | Flat rate per month |
|---|---|
| 1 | £350 |
| 2 | £500 |
| 3 or more | £650 |
The flat rates are optional and frequently worse than the real numbers. Work from home three days a week and the actual apportionment — a share of heating, electricity, Council Tax, rent or mortgage interest, based on rooms used and time — will usually beat £26 a month comfortably. Run the comparison.
Cash basis or traditional accounting
Cash basis has been the default for sole traders and partnerships without corporate partners since 2024/25. You record income when you receive it and expenses when you pay them, so you do not pay tax on invoices you have not been paid for. You must actively opt out on your return to use traditional accruals accounting.
Cash basis is closed to limited companies, LLPs, partnerships with corporate partners and Lloyd’s underwriters. It is also closed to five specific businesses that most lists leave unnamed:
- a farming business with a current herd basis election
- a farming or creative business with a fluctuating profit averaging claim
- a business that has claimed business premises renovation allowance in the previous 7 years
- a mineral extraction trade
- a business that has ever claimed research and development allowance
Two practical differences:
- Bad debts cannot be claimed under cash basis, because you never recorded the income.
- Equipment bought under cash basis is generally claimed as an ordinary allowable expense when you pay for it. Cars are the exception — you claim capital allowances on a car, provided you are not using the mileage flat rate for it.
Capital allowances
Check which basis you are on before reading this section. Cash basis is the default, and under cash basis you cannot claim capital allowances at all except on cars — equipment is an ordinary allowable expense in the period you pay for it, as set out above. Everything below therefore applies to you only if you have opted out onto traditional accruals accounting, or the asset in question is a car. On the default basis the £10,000 example further down is not available to you.
Under traditional accounting, assets you buy and keep — equipment, machinery, business vehicles — go through capital allowances rather than being expensed.
| Allowance | Rate | Notes |
|---|---|---|
| Annual Investment Allowance | 100% on up to £1,000,000 a year | Most plant and machinery. Cars excluded. |
| New first-year allowance | 40% | Expenditure on or after 1 January 2026. New and unused main-rate plant and machinery. Available to unincorporated businesses and to assets bought for leasing. Second-hand assets and cars excluded. |
| Main pool writing-down allowance | 14% | Cut from 18%, effective 6 April 2026 for Income Tax |
| Special rate pool | 6% | Unchanged |
| Structures and Buildings Allowance | 3% | Unchanged |
The 14% main pool rate is the change most content has missed. It was 18% and it is now 14% — a real reduction in the pace of relief on anything that does not get 100% up front.
For most sole traders the Annual Investment Allowance still does the work: £1,000,000 a year of plant and machinery at 100%. The new 40% first-year allowance matters where AIA is unavailable — used up, or the asset is bought for leasing. Example: £10,000 of new main-rate plant with no AIA available gives 40% up front (£4,000) plus a 14% writing-down allowance on the remaining £6,000 (£840) = £4,840 in year one.
Cars are excluded from both AIA and the 40% allowance, so they go into a pool and attract writing-down allowances at a rate that depends on CO2 emissions. Where a period straddles the rate change, a hybrid main pool rate applies, based on the proportion falling either side.
What is not allowable
| Not allowable | Why |
|---|---|
| Entertaining clients, suppliers and customers | Specifically disallowed, including event hospitality and most gifts |
| Everyday clothing | Disallowed even if you only wear it for work. Uniforms, protective clothing and performers’ costumes are fine |
| Fines and penalty charges | Including parking fines and fines for breaking the law |
| Travel between home and work | Commuting is private |
| Drawings | Money taken for personal use is not a business cost |
| The cost of preparing your Self Assessment return | HMRC treats this as personal, not a trading expense |
| Loan repayments | The interest is allowable; the capital repayment is not |
| Gym membership, political donations, charitable donations | Sponsorship payments may be claimable — donations are not |
| Legal costs of buying property or machinery | Capital, so they follow the asset into capital allowances |
Training is the subtle one. You can claim for training that improves skills you already use, keeps you current with technology in your industry, or develops new skills to support the business, including administrative skills. You cannot claim for training that helps you start a new business or expand into an unrelated area. The line is between maintaining a trade and creating one.
Frequently asked questions
Can I claim for lunch while working?
Generally no. Everyday subsistence is not wholly and exclusively for the trade — you would have eaten anyway. Meals on genuine overnight business trips are allowable, as are reasonable subsistence costs where travel is outside your normal pattern.
What mileage rate applies for 2026/27?
55p a mile for the first 10,000 business miles in cars and goods vehicles, then 25p, and 24p for motorcycles. The 55p rate is now law rather than an announcement — the Taxation (Energy and Vehicles) Act 2026 (c. 26), s.2 substitutes 55p for 45p in ITTOIA 2005 s.94F(2)–(3), with effect for 2026/27 onwards. Anything still quoting 45p is out of date.
Can I claim my mobile phone?
Only the business proportion. If your annual bill is £200 and £70 of it relates to business calls, you claim £70. A separate business contract removes the argument entirely.
Is it better to use simplified expenses or actual costs?
Whichever is higher. Simplified expenses save time, not tax. The home working flat rates in particular — £10, £18 or £26 a month — are often well below a proper apportionment of heating, electricity, Council Tax and rent or mortgage interest.
Can I claim expenses and the £1,000 trading allowance?
No. Claiming the trading allowance rules out both expenses and capital allowances for that year. Work out your taxable profit both ways and use whichever leaves you better off.
Claiming what you are entitled to
Most under-claiming is not exotic: unrecorded mileage, a home office claimed at a flat rate when the real apportionment was three times higher, and capital allowances left on the table because a purchase was miscoded as drawings.
SmartFiling handles Self Assessment and MTD for Income Tax on a fixed fee, including reviewing your expense claims and capital allowances before anything is filed. Every submission is reviewed by an ICAEW Chartered Accountant, and turnaround is three weeks from receiving your records.
