Sole Trader Expenses: What You Can (and Can't) Claim

Claiming the right expenses is one of the quickest ways to legitimately reduce your tax bill as a sole trader. But under Making Tax Digital, how you record those expenses matters as much as what you claim.

This guide covers what you can and can't claim, how to record expenses correctly under MTD, and the common mistakes that cost sole traders money.

The golden rule of allowable expenses

An expense is allowable if it's incurred 'wholly and exclusively' for the purposes of your trade. In plain English: if you bought it purely for your business, you can generally claim it. If it's a personal cost, you can't — even if it's tangentially useful to your work.

Where an expense is partly business and partly personal (a phone bill, for example), you can claim the business portion as long as you can show how you split it.

Common allowable expenses

Most sole traders claim some combination of the following. These are the categories you'll record expenses against in your MTD software:

• Office costs — stationery, software subscriptions, phone and internet (business portion).
• Travel — fuel, parking, train fares and hotels for business trips (not your everyday commute).
• Clothing — uniforms or protective wear required for your work, but not everyday clothes.
• Staff costs — wages, salaries, and subcontractor fees for anyone you employ.
• Premises — rent, heating, lighting, and business rates for your workspace.
• Stock and materials — anything you buy to make or deliver what you sell.
• Financial costs — insurance, bank fees, and interest on business loans.
• Marketing — advertising, website costs, and professional fees.

What you can't claim

Some costs are explicitly not allowable, even if they feel business-related:

• Personal living expenses, including your own salary or drawings from the business.
• Fines and penalties, including parking tickets.
• Entertaining clients or customers (there are very limited exceptions).
• Everyday clothing, even if you wear it for work.
• Your daily commute between home and your main place of work.

Simplified expenses vs actual costs

For some costs, HMRC offers flat-rate 'simplified expenses' so you don't have to work out the exact split between business and personal use:

• Vehicles — a flat rate per business mile instead of tracking actual fuel and running costs.
• Use of your home — a flat rate per hour of business use, based on hours worked each month.
• Living in your business premises — a flat rate instead of splitting personal and business costs.

You can choose simplified or actual costs for each category, but you can't switch methods for the same vehicle or property once you've started. AppyTax lets you record either way and shows you which is likely to give the bigger deduction.

Capital allowances vs day-to-day expenses

Bigger purchases that last beyond a year — equipment, machinery, vehicles — are usually treated as capital allowances rather than everyday expenses. They still reduce your taxable profit, but the rules and timing work differently.

There's also the Annual Investment Allowance, which lets you deduct the full cost of most equipment in the year you buy it, up to a generous limit. For most sole traders this means equipment can be written off immediately, just like an expense.

Recording expenses under MTD

Under Making Tax Digital, every expense needs to be recorded digitally with the date, amount, and category. The good news: this is the easy part. AppyTax lets you log an expense in seconds, snap a photo of the receipt, and let the software categorise it — your quarterly updates then pull the totals automatically.

The habit that pays off is logging expenses as they happen, rather than trying to reconstruct them at quarter-end. A few minutes here and there keeps your records clean and your deductions maximised.

Claim everything you're entitled to

Most sole traders under-claim because they forget small costs or aren't sure what's allowable. AppyTax prompts you with common expense categories and makes logging effortless — so you keep more of what you're entitled to. Subscribe and your first quarter's expenses will be sorted in no time.