Allowable Expenses for the Self-Employed: A Plain Guide
What counts as an allowable business expense when you're self-employed — the main categories HMRC accepts, what's disallowed, the 'wholly and exclusively' test, and how expenses feed your MTD quarterly updates.
The short answer
Allowable expenses are costs incurred wholly and exclusively for your business — things like stock, tools, business travel, a proportion of home and phone costs, professional fees and marketing. They reduce your taxable profit. Private or 'dual-purpose' costs aren't allowable, and where a cost is part-business, you claim only the business proportion.
Claiming the right expenses is the difference between paying tax on your turnover and paying tax on your actual profit. Here's a plain-English guide for the self-employed.
The golden rule: wholly and exclusively
An expense is allowable only if it's incurred wholly and exclusively for the business. If a cost has a private element too (a "dual purpose"), you can usually only claim the business proportion — for example, the business share of your phone bill.
Common allowable expenses
| Category | Examples |
|---|---|
| Cost of goods | Stock, raw materials, subcontractor payments |
| Travel | Business mileage, train fares, parking, accommodation |
| Premises | Rent, business rates, a proportion of home costs |
| Office | Stationery, postage, software, phone and internet (business share) |
| Professional | Accountancy, legal fees, professional insurance |
| Marketing | Website, advertising, business cards |
| Finance | Bank charges, interest on business loans |
Working from home
You can claim for a home office two ways:
- Actual costs — a fair proportion of heating, electricity, broadband and so on, based on business use.
- Simplified flat rate — a set monthly amount based on the hours you work from home, with no need to split bills.
Pick whichever gives the fairer (or simpler) result.
What's not allowable
- Purely private costs, or dual-purpose costs you can't split.
- Client entertaining.
- Most fines and penalties.
- Your own wages, drawings and personal tax.
Vehicles and equipment are usually dealt with through capital allowances or the cash-basis rules rather than as ordinary expenses — see our guide to simplified expenses and mileage.
How this works under MTD
Under Making Tax Digital you record each expense digitally and report the totals in your cumulative quarterly update. Depending on your turnover you'll either report a single consolidated figure or itemised categories — our guide on consolidated vs itemised expenses explains which applies.
Key takeaways
- Claim costs that are wholly and exclusively for the business; split dual-purpose costs.
- Common claims: stock, travel, premises, office, professional and marketing costs.
- Home working can be claimed by actual proportion or a flat rate.
- Record everything digitally — it flows straight into your MTD updates.
This article is general information, not tax advice. Check HMRC's expenses guidance at gov.uk or speak to your accountant.
Frequently asked questions
What are allowable expenses?
Costs incurred 'wholly and exclusively' for your business, which you can deduct from your income to work out taxable profit. Common examples include materials, business travel, tools, insurance, accountancy fees and advertising.
Can I claim for working from home?
Yes — either a proportion of your actual household costs based on business use, or HMRC's simplified flat rate based on hours worked at home. You can't claim the full household bills, only the business share.
What can't I claim?
Anything private or with a dual private/business purpose that can't be split, client entertaining, most fines, and your own drawings or personal tax. Cars and equipment are usually handled through capital allowances or the cash-basis rules rather than as a normal expense.
How do expenses fit into MTD?
You record each expense digitally and include the totals in your cumulative quarterly update. Under MTD you'll report either a single consolidated expenses figure (if eligible) or itemised categories.
Related reading
Self-Employed Tax Deductions Checklist (Don't Miss These)
A checklist of commonly missed tax deductions for the self-employed — from home office and mileage to professional subscriptions, bank charges and pension contributions — so you don't pay more tax than you owe.
Simplified Expenses and Mileage for the Self-Employed
How HMRC's simplified expenses work — flat rates for vehicle mileage, working from home and living on business premises — when they beat working out actual costs, and how they fit with MTD.
MTD for Income Tax Explained for Sole Traders (2026 Guide)
A plain-English guide to Making Tax Digital for Income Tax for sole traders — who's affected, what changes, what you have to do each quarter, and how to get ready before April 2026.