Starting Out as a Sole Trader

Getting started as a Sole Trader comes with exciting opportunities – and new responsibilities. Alongside running your business, you’ll encounter various costs. The good news? Many of these can be claimed as allowable business expenses, helping reduce your tax bill and letting you keep more of your hard-earned money.

It’s easy to lose track of what can and can’t be claimed, especially when juggling multiple business costs. Missing allowable expenses means paying more tax than necessary. This guide breaks down the expenses you can claim as a Sole Trader, including a simple table for quick reference.

If you’re starting a limited company instead, we also have a separate guide for Limited Company expenses.

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Understanding Tax Relief for Sole Traders

As a Sole Trader, you pay Income Tax on your trading profits. Allowable business expenses reduce your taxable profit, lowering the amount of tax you owe.

To claim properly, you need to maintain accurate records of all business costs. These records must be kept for six years for HMRC purposes. Tools like a self-employed tax calculator can make estimating your tax easier.

HMRC rules can be complex, often based on ‘fairness’ and ‘reasonableness.’ When in doubt, consult an accountant. Adena AccountancyONE subscribers have access to qualified accountants whenever needed.

Key points to remember:

• Only purchases made wholly for business purposes are considered allowable.
• Record all expenses accurately and keep receipts for filing with your Self Assessment.
• Some expenses, like working from home or vehicle costs, can use simplified or flat-rate methods.
• For smaller businesses with less than £1,000 of costs, consider the trading allowance.

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Trading Allowance for Sole Traders

If you don’t expect to spend much on your business, the trading allowance allows a flat £1,000 deduction from total profits. No other expenses can be claimed alongside it.

This allowance is ideal for casual or low-profit businesses. However, ambitious Sole Traders usually benefit more from claiming actual expenses. The trading allowance can be applied during the Self Assessment process.

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Accounting Made Simple

Keeping accounts as a Sole Trader doesn’t need to be complicated. Use accounting software or simple spreadsheets to track all expenses, from business mileage to office supplies. This ensures accuracy and compliance with HMRC, reducing stress during tax season.

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Expenses You Can Claim as a Sole Trader

Expense Type	Can a Sole Trader Claim?	Notes
Working from home – rent, repairs, utilities, insurance	Yes, partially	Claim a portion of costs or a flat rate
Technology – laptops, phones, printers, software	Yes	100% if used for business
Car insurance and fuel	Yes	Flat allowance or mileage percentage
Business services – accountants, subcontractors, freelancers	Yes	Full cost with receipts/invoices
Insurance	Yes	Only if relevant to the business
Meals with clients or suppliers	Yes	Drinks excluded
Bank fees, credit cards	Yes	Costs for running the business
Clothing	No	Suits/formalwear not allowable
Uniforms or specialist equipment	Yes	Business necessity only
Fines (e.g., parking tickets)	No	Not claimable
Charitable donations	Yes, with Gift Aid	Ensure donations follow HMRC rules
Clubs and subscriptions	Yes, relevant to business	Only for professional purposes
Travel	Yes, relevant	Must be wholly for business

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How to Claim Self-Employed Expenses

Sole Traders claim expenses via the Self Assessment tax return. Only costs that are “wholly and exclusively” for business purposes are allowable.

Dual-purpose expenses: If an expense has both personal and business elements, only the business portion can be claimed. For example, if 50% of your phone use is for business, only 50% of the bill is claimable.

Simplified expenses: HMRC allows flat rates for certain costs, like working from home or vehicle use. Use Gov.uk’s simplified expenses checker to determine which method works best for you.

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Keeping Accurate Records

Accurate record-keeping is crucial. Maintain spreadsheets or accounting software for:

• Business mileage
• Receipts and invoices
• Office supplies and other expenses

Tips:

• Keep paper copies safe and back up digitally (e.g., mobile photos or scanning apps).
• Log all expenses with dates and amounts for HMRC verification.
• Avoid unnecessary taxi or travel claims, as HMRC scrutinizes excessive costs.

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Key Allowable Expenses for Sole Traders

Accountancy and Legal Fees

You can claim fees for accountants or legal professionals directly related to your business.

Accommodation During Business Travel

Full tax relief is allowed for reasonable accommodation, such as overnight hotels for business purposes.

Bank and Financial Charges

Allowable costs include:

• Business bank or credit card fees
• Interest on business loans (not capital repayments)
• Hire purchase or leasing interest
• Alternative finance arrangements

Insurance Policies

Professional indemnity, public liability, and business premises insurance are claimable.

Business Mileage and Vehicles

Claim mileage for business travel using HMRC-approved rates:

Vehicle	Rate per mile (first 10,000 miles)	Rate per mile (over 10,000 miles)
Cars/Vans	45p	25p
Motorbikes	24p	24p

Personal use reduces the claimable amount. Sole Traders cannot have company cars but can claim mileage or running costs proportionally.

Business Rent and Utilities

Claim expenses for:

• Business premises rent
• Business rates and utilities
• Home office proportion of bills

Marketing, Advertising, and PR

Allowable costs include:

• Advertising in print or online
• Website costs, domains, and business emails
• Direct marketing campaigns

Professional Subscriptions

Only HMRC-recognized professional bodies relevant to your business are allowable.

Training and Work-Related Courses

Claim costs for courses that improve skills used in your current trade. Courses for new skills unrelated to your business are not claimable.

Telephone, Mobile, and Broadband

Claim only the business-use portion of your bills.

Work Uniform or Protective Clothing

Uniforms with your business logo or protective workwear are claimable. Everyday clothing is not allowed.

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Final Tips for Self-Employed Success

• Keep all receipts and invoices for at least six years.
• Separate personal and business expenses clearly.
• Use accounting software to simplify tracking and reporting.
• Consult an accountant for complex claims like vehicles, home office, or high-value assets.

For more self-employed tips, explore our Knowledge section, which includes articles on online business ideas, tax planning, and managing holidays as a Sole Trader