Last reviewed: 29 September 2026 · Reviewed by IFM's qualified accountant
Good evidence matters as much as the category. Record the date, supplier, amount, business purpose, private element and payment route while the transaction is clear.
What should you know about the wholly and exclusively test?
An expense must be for the trade. A cost with a separate personal purpose may be disallowed, while an identifiable business portion of a mixed cost can sometimes be claimed.
Ordinary clothing is private even when bought for work; uniforms, protective clothing and costumes can qualify under narrower rules. Travel between home and a permanent business base is normally private, while qualifying business journeys can be deductible.
Do not decide from the bank account alone. A business-card payment can still be private, and a personally paid invoice can still be a business expense.
What should you know about the 2026/27 trading allowance?
The trading allowance is up to £1,000 for 2026/27. If total gross trading income is £1,000 or less and no exclusion applies, full relief may mean the income does not need to be reported. Records of the income should still be kept.
Where gross income exceeds £1,000, a person can elect for partial relief by deducting the allowance instead of actual expenses and capital allowances. They cannot deduct the £1,000 and the same trade's actual costs as well.
The allowance does not apply to partnership income and is restricted for income from an employer, a connected company or partnership in specified circumstances. Compare both methods using the complete year.
What should you know about office, phone and software?
Business stationery, postage, software, website costs, business insurance, accountancy and bank charges can qualify. Claim only the business share of a mixed mobile, internet or other service using a reasonable method.
Initial costs may be allowable if incurred within seven years before trade begins and they would have been deductible had the trade already started. Keep invoices and the commencement rationale.
Capital software or equipment can require capital-allowance treatment rather than an ordinary expense, depending on the facts and accounting basis.
What should you know about working from home?
A sole trader can apportion actual household costs such as heating, electricity, Council Tax, rent or mortgage interest using a reasonable method based on rooms, time and business use. Exclusive business use of part of a home can have other legal and Capital Gains Tax implications.
Alternatively, simplified expenses for 2026/27 use monthly flat rates where business work at home is at least 25 hours a month: £10 for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more. Telephone and internet costs are not included in those flat rates and require their own business allocation.
Compare actual and simplified methods; convenience is not always the largest deduction.
What should you know about vehicles and travel?
For 2026/27, simplified mileage for cars and goods vehicles is 55p per business mile for the first 10,000 miles and 25p thereafter. Motorcycles use 24p and bicycles 20p per business mile for 2026/27.
The 55p first band changed from the pre-6 April 2026 rate. Use a dated mileage log showing journey, endpoints, business purpose and distance.
If actual vehicle costs or capital allowances are used, apply the private-use restriction and consistency rules. Parking for business travel can qualify; fines do not.
Travel and subsistence must relate to the trade. Regular travel to a base can be ordinary commuting depending on the business pattern.
What should you know about stock, subcontractors and staff?
Goods bought for resale, raw materials, subcontractor charges and employee wages can be deductible. Keep contracts, invoices and evidence of employment-status decisions.
Construction Industry Scheme duties can apply to payments to subcontractors. Payroll, pension and employer obligations arise separately where workers are employees.
Unsold stock and work in progress may need year-end adjustment under traditional accounting. Cash paid is not always the final tax deduction.
What should you know about training and professional costs?
Training that updates existing trade skills can qualify. Training that enables a person to start a new, different trade is generally not an expense of the existing trade.
Professional subscriptions and legal costs depend on purpose. Costs of collecting trade debts can differ from costs of buying a capital asset or defending personal matters.
Client entertaining is generally not allowable, even when there is a clear commercial reason for the meeting. Record it separately.
What should you know about cash basis and capital items?
Cash basis is the default for many sole traders, but exclusions and elections apply. Under cash basis, most ordinary income and expenses are recognised when received or paid, while some capital rules remain.
Cars commonly require capital allowances if the actual-cost route is used. Other equipment may be deducted under cash-basis rules or receive capital allowances under traditional accounting. Do not claim purchase cost, mileage and capital allowances for the same vehicle inconsistently.
Keep asset dates, invoices, business-use proportions and disposal proceeds.
What should you know about losses and evidence?
Allowable expenses can create a trading loss. The choice to set it against other income, carry it back or carry it forward depends on conditions, time limits and the taxpayer's wider position.
The trading allowance cannot be used to create a loss. If actual expenses exceed income, claiming them may preserve a genuine loss but requires full records.
Retain invoices, receipts, mileage logs, statements and calculations. For 2026/27, a self-employed person filing by 31 January 2028 would ordinarily retain relevant records for at least five years after that deadline, subject to longer rules where returns are late or enquiries continue.
What should you know about review monthly?
Reconcile the bank, cash, payment platforms and sales records. Separate assets, loans, transfers, tax payments and private drawings from expenses. Attach evidence and explain unusual items.
See sole trader and landlord support for the relevant service page. Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What should you know about a monthly expense review?
Separate business, mixed, capital and private items. Reconcile bank and card balances, attach missing evidence and record a clear purpose. Review supplier refunds and credit notes so costs are not overstated.
Compare actual expenses with the 2026/27 £1,000 trading allowance before finalising the return. If simplified mileage or homeworking rates are used, retain the mileage and hours records supporting them.
What should you know about common errors?
Avoid claiming ordinary clothing, commuting, fines, personal meals or full mixed-use bills. Do not deduct loan capital, Income Tax or private drawings as expenses.
Do not claim both actual vehicle running costs and simplified mileage inconsistently for the same vehicle. Treat equipment, finance and pre-trading costs under their specific rules.
Finally, never create an expense merely for tax relief. The business keeps only the after-tax fraction of unnecessary spending and loses the remaining cash.
What should you know about mTD record keeping?
Where MTD for Income Tax applies, create digital records close to the transaction date and use compatible software for quarterly updates. The update categories do not remove the need for invoices and business-purpose evidence.
Correct errors in the underlying digital record so later cumulative totals reflect the change. Keep a clear audit trail rather than overwriting an amount without explanation.
At year end, add capital allowances, private-use adjustments, losses and claims through the final tax process. Quarterly totals are not a substitute for the complete profit calculation.
What should you read next?
Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What do people also ask about this topic?
What should you know about the wholly and exclusively test?
An expense must be for the trade. A cost with a separate personal purpose may be disallowed, while an identifiable business portion of a mixed cost can sometimes be claimed.
What should you know about the 2026/27 trading allowance?
The trading allowance is up to £1,000 for 2026/27. If total gross trading income is £1,000 or less and no exclusion applies, full relief may mean the income does not need to be reported. Records of the income should still be kept.
What should you know about office, phone and software?
Business stationery, postage, software, website costs, business insurance, accountancy and bank charges can qualify. Claim only the business share of a mixed mobile, internet or other service using a reasonable method.
What should you know about working from home?
A sole trader can apportion actual household costs such as heating, electricity, Council Tax, rent or mortgage interest using a reasonable method based on rooms, time and business use. Exclusive business use of part of a home can have other legal and Capital Gains Tax implications.
Which official sources support this guide?
- https://www.gov.uk/expenses-if-youre-self-employed
- https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
- https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
General guidance, not advice for your situation.
