Self-Employed Allowable Expenses (2026/27): Complete HMRC Checklist

Q What is the "wholly and exclusively" test?

ITTOIA 2005 s.34(1)(a): no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade. The leading case is Mallalieu v Drummond [1983] 2 AC 861 (HL), where the House of Lords disallowed a barrister's sober clothing for court because it also served the personal purposes of warmth and decency. An expense with a dual purpose fails the test. But s.34(2) allows a deduction for any identifiable part or proportion of an expense that is incurred wholly and exclusively for the trade, which is why home running costs or a car used partly for business can be apportioned.

Q What is the £1,000 trading allowance?

A £1,000 tax-free allowance for trading income (ITTOIA 2005 Part 7A, from s.783A). If your gross trading income is £1,000 or less, it is covered and you do not need to report it. Above that you can deduct the allowance instead of your actual expenses. Example: £3,500 of income and £400 of expenses - the allowance leaves £2,500 taxable, actual expenses leave £3,100, so the allowance is better. gov.uk says it cannot be used for income from a partnership you are in, a company you or someone connected to you owns or controls, or your (or your spouse's) employer. See our side hustle tax calculator.

Q Simplified vs actual expenses - which is better?

Simplified expenses (ITTOIA 2005 ss.94B-94I) are flat rates for three areas. Vehicles: 55p a mile for the first 10,000 business miles and 25p after for cars and goods vehicles, 24p for motorcycles (BIM75005, 2026/27). Use of home: £10, £18 or £26 a month for 25-50, 51-100 or 101+ hours of business work. Premises that are also your home: deduct £350, £500 or £650 a month for private use by 1, 2 or 3+ people. Which is better depends on your real costs, so compare both. For a vehicle the choice sticks: once you use the mileage rate you must keep using it for that vehicle, and you cannot use it if you have ever claimed capital allowances on it. Limited companies cannot use simplified expenses.

Q Use of home as office - how much can I claim?

Simplified flat rate: £10 a month for 25-50 hours of business work in the home, £18 for 51-100 hours and £26 for 101 or more, so at most £312 a year. HMRC BIM75010 says the flat rate covers household running costs and does not stop a separate claim for an identifiable business proportion of council tax, insurance and mortgage interest, or of phone and broadband. Actual costs: apportion running costs such as heat and light by how much and how long the space is used for the business; fixed costs such as council tax, mortgage interest (not capital repayments) and rent are allowable in part where part of the home is used solely for the trade (BIM47820). Example: £4,800 of annual household costs, a room that is 10% of the floor area, used 40 of 168 hours a week: £4,800 x 10% x 40/168 = about £114 a year.

Q Can I claim training course costs?

gov.uk says you can claim training that helps you improve skills and knowledge you already use in your business, keep up to date with technology in your industry, or develop new skills related to changes in your industry or to support the business, including administrative skills. You cannot claim training that helps you start a new business or expand into areas not directly related to your industry. HMRC's BIM35660 says the same and cites Dass v Special Commissioner [2006] EWHC 2491 (Ch), where a law diploma for a tutor was held to be capital because it equipped him with a new qualification.

Q What's the mileage rate?

For 2026/27, the simplified expenses rate for cars and goods vehicles is 55p a mile for the first 10,000 business miles and 25p after, and 24p for motorcycles (BIM75005). HMRC's approved mileage rates table shows the car rate was 45p from 2011 to 2026. The rate covers buying, running and depreciating the vehicle; parking, tolls and congestion charges on business journeys are claimed on top. The alternative is the business proportion of actual running costs plus capital allowances. Ordinary commuting is not business mileage. Simplified expenses do not cover bicycles; claim actual costs instead.

Q Capital vs revenue - what is the distinction?

ITTOIA 2005 s.33 disallows items of a capital nature in calculating trading profits. Capital spending - vehicles, machinery, equipment, premises - is relieved through capital allowances instead: in 2026/27 the Annual Investment Allowance covers up to £1,000,000 of most plant and machinery (not cars), with a 14% main-pool writing-down allowance and a 40% first-year allowance on new main-rate plant. Revenue spending - stock, fuel, wages, marketing, repairs - is deducted from profit. The classic test from British Insulated and Helsby Cables v Atherton [1926] AC 205 (HL) is whether the spending brings into existence an asset or advantage of enduring benefit to the trade. HMRC's guidance is at BIM35000. If you use the cash basis, most capital purchases other than cars are deducted as expenses.

Q Can I claim my phone, laptop, internet costs?

Yes, for the business share. A phone used only for business is fully allowable; for a mixed-use phone, claim the business proportion (an itemised bill helps). BIM75010 notes that where private use of a phone or broadband line is not significant, the full cost can be claimed. A laptop or computer is usually capital equipment, claimed through the Annual Investment Allowance (or as an expense under the cash basis), reduced for any private use. Keep a record of how you worked out the business proportion in case HMRC asks.

Q Pre-trading expenses - can I claim costs before I started?

Yes. ITTOIA 2005 s.57 treats revenue expenses incurred within 7 years before the trade starts as incurred on the day it starts, if they would have been deductible had the trade been running. They must pass the wholly and exclusively test, so personal living costs during setup do not qualify. Capital items bought before you started, such as equipment, are relieved through capital allowances as if bought on the first day of trading. Keep dated receipts so you can show what each cost was for.

Q Can I claim my own pension contribution as a business expense?

No. A sole trader's personal pension contributions are not a trading expense. They get tax relief through the pension rules instead: under relief at source, a £1,000 contribution from your bank becomes £1,250 in the pension, and a higher-rate taxpayer claims a further £250 through Self Assessment. Grossed-up contributions also reduce adjusted net income, which matters for the Personal Allowance taper and the High Income Child Benefit Charge. A limited company is different: employer contributions it makes for a director can be deductible in computing its profits. See our maximum pension contribution calculator.

Q Can I claim entertainment + meals for clients?

No for client entertainment. ITTOIA 2005 s.45 disallows business entertainment and gifts for sole traders and partnerships; CTA 2009 s.1298 is the company equivalent. gov.uk lists hospitality, venue hire and event tickets for clients as not claimable. Entertaining your own staff is allowable (s.46): gov.uk says you can claim an event such as an annual staff dinner if employees are the main attendees. Separately, the employee is not taxed on an annual event costing £150 a head or less (ITEPA 2003 s.264). Gifts to clients are allowable only if they carry a conspicuous advertisement for the business, are not food, drink, tobacco or vouchers, and cost £50 or less per person in the tax year in total (s.47); a single £75 gift to one person fails the test entirely.

Q What records do I need to keep?

TMA 1970 s.12B requires records to support your return. gov.uk says the self-employed must keep them for at least 5 years after the 31 January submission deadline for the tax year: a 2026/27 return due 31 January 2028 means keeping records until at least 31 January 2033. Keep receipts, invoices, bank statements and a mileage log (date, journey, purpose, miles). Making Tax Digital for Income Tax requires digital records and quarterly updates through compatible software for sole traders and landlords with qualifying income over £50,000 from 6 April 2026, over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028. See our MTD ITSA guide.