UK Self-Employed Allowable Expenses Master Guide 2026/27
Self-employed allowable expenses 2026/27: wholly and exclusively test, simplified vs actual costs, 55p mileage, use of home and capital allowances.
A guide to UK self-employed allowable expenses for 2026/27: the wholly and exclusively test, capital allowances versus revenue costs, simplified versus actual methods for vehicles, home and premises, and the costs GOV.UK says you cannot claim. Statute: ITTOIA 2005 ss.34, 45-47 and 57; HMRC guidance in BIM37000.
Frequently asked questions
What does the wholly and exclusively test mean?
ITTOIA 2005 s.34: an expense is deductible only if it is incurred wholly and exclusively for the trade, but s.34(2) allows the identifiable business part of a mixed expense. Pass: trade tools, business software, protective clothing or uniforms that are not everyday clothing. Fail: everyday clothing such as suits, even if worn only for work (GOV.UK); entertaining clients (s.45); childcare or domestic help (GOV.UK). Apportionment: a car used 60% for business, or a phone used 80% for business calls, gives a 60% or 80% deduction of the running costs.
What is the difference between capital allowances and revenue expenses?
Revenue costs are deducted in the year. Capital items depend on your accounting basis. Cash basis (the default for sole traders, per GOV.UK): equipment you buy and keep is claimed as an allowable expense; only cars go through capital allowances. Traditional accounting: equipment and vans qualify for the Annual Investment Allowance (AIA), up to £1,000,000. Cars never qualify for AIA: they get 14% a year (CO2 up to 50g/km) or 6% (over 50g/km), or 100% first-year allowance if new and zero-emission, available to income tax payers until 5 April 2027 (CAA 2001 s.45D). Example: £2,000 laptop + £500 chair + £15,000 van = £17,500 deducted in year one either way. Saving at basic rate plus Class 4 (20% + 6%): £4,550; at higher rate plus Class 4 (40% + 2%): £7,350.
How do I claim home office costs when self-employed?
Simplified flat rate (GOV.UK): £10 a month for 25-50 hours of business use, £18 for 51-100 hours, £26 for 101 hours or more - no apportionment needed. It does not cover phone or internet, which you claim at actual business use either way. Actual costs: apportion heating, lighting, council tax and mortgage interest or rent by rooms and hours. Example: 1 room of 5 used 50 hours of 168 a week = about 6%: heating £1,200 → £71, electricity £600 → £36, council tax £1,800 → £107, total £214. The flat rate at 101+ hours a month gives £312, so here simplified wins. Watch: a room used exclusively for business can restrict Private Residence Relief when you sell the home.
Which method should I use for vehicle expenses?
Simplified mileage (GOV.UK, 2026/27): 55p a mile for the first 10,000 business miles in a car or van and 25p after that; 24p for motorcycles. It replaces fuel, insurance, servicing and the cost of the vehicle; parking and other travel are claimed on top. You cannot use it for a vehicle you have already claimed capital allowances on, and once you use it for a vehicle you must keep using it for as long as that vehicle is in the business. Actual costs: business share of running costs plus capital allowances on the purchase. Example - 15,000 business miles of 20,000: simplified £6,750; actual running costs £6,000 × 75% = £4,500, plus capital allowances on the business share of the car's cost.
When are travel and subsistence costs allowable?
GOV.UK lists vehicle running costs, parking, train, bus, tram, air and taxi fares, hotel rooms and meals on overnight business trips. You cannot claim travel between home and your regular place of work, non-business travel, or fines and penalty charges. Entertaining clients, suppliers or customers - including lunch at a meeting - is not allowable (ITTOIA 2005 s.45). An event for your employees, such as an annual staff dinner, is allowable if employees are the main attendees (s.46).
Can I deduct equipment, tools and technology?
Yes. GOV.UK says items you would normally use for less than 2 years can be claimed as allowable expenses, and under the cash basis items you buy and keep (other than cars) are claimed as allowable expenses too. Under traditional accounting, longer-life equipment goes through capital allowances (AIA up to £1,000,000). Subscriptions, cloud software, repairs and protective equipment are revenue costs. Phones and broadband: claim the business proportion only - GOV.UK's example is £70 of business calls on a £200 phone bill.
Which professional fees and subscriptions are deductible?
GOV.UK allows accountants, solicitors, surveyors and architects hired for business reasons, professional indemnity and other business insurance, bank and card charges and interest on business loans, and trade body or professional membership related to your business. It does not allow the cost of preparing and submitting your Self Assessment tax return, legal costs of buying property and machinery (capital allowances under traditional accounting), loan repayments, political donations, gym membership or charity donations. Fines for breaking the law are not deductible (HMRC BIM42515), and crime-related payments such as bribes are barred by ITTOIA 2005 s.55 (CTA 2009 s.1304 for companies).
Are marketing, advertising and website costs deductible?
Yes - GOV.UK lists newspaper and directory advertising, mailshots and website costs. Free samples of things you sell are allowable. Promotional gifts of things you do not sell are allowable only if they carry your business name or logo, are not food, drink, tobacco or vouchers, and cost no more than £50 per recipient per tax year in total (ITTOIA 2005 s.47; GOV.UK). Client entertainment is not allowable.
Should I use the simplified or actual expenses method?
Simplified expenses are available to sole traders and partnerships with no company partners, for three things only (GOV.UK): vehicles (55p/25p a mile; once used for a vehicle you must stay on it for that vehicle), working from home (£10/£18/£26 a month), and living at your business premises, such as a B&B, where you total the premises costs and subtract a flat £350, £500 or £650 a month for private use by 1, 2 or 3+ people. Everything else is claimed at actual cost. GOV.UK has a simplified expenses checker to compare the two.
Can I claim expenses from before I started trading?
ITTOIA 2005 s.57: revenue expenses incurred in the 7 years before the trade starts are treated as incurred on the first day of trading, if they would have been deductible once trading (HMRC BIM46351). Not s.57: capital spending - equipment bought before launch goes through capital allowances as if bought on the first trading day (CAA 2001 s.12); stock bought before launch is deducted when trading begins as cost of goods sold (BIM46351); training to start a new business is not allowable (GOV.UK). Example: £200 software + £100 marketing (s.57) and a £900 laptop (CAA s.12) give £1,200 of first-year relief; an £800 course taken to start the business is not claimable. Basic-rate income tax saving: £240.
Which expenses are not deductible?
Common wrong claims: client entertainment, including food and drink (s.45); everyday clothing (GOV.UK); childcare, nannies and domestic help (GOV.UK); fines and penalties (BIM42515); personal pension contributions (relieved through your tax return, not as a business expense); charity donations (Gift Aid instead, though sponsorship may be allowable - GOV.UK); gym membership and political donations (GOV.UK); the cost of preparing your own Self Assessment return (GOV.UK); wages to a family member above what the work is worth (the wholly and exclusively test in s.34).
How do I make sure I claim every allowable expense?
(1) Record expenses as they happen and keep receipts - GOV.UK says keep records for at least 5 years after the 31 January submission deadline. (2) Keep a mileage log for business journeys. (3) Compare simplified and actual methods with GOV.UK's checker. (4) Choose between the £1,000 trading allowance and actual expenses - you cannot use both, and the allowance also rules out capital allowances (GOV.UK). (5) Remember Class 4 NI is 6% on profits between £12,570 and £50,270 and 2% above, so expenses cut NI as well as income tax. (6) Below the Small Profits Threshold of £7,105 you can pay voluntary Class 2 to protect your State Pension record. (7) MTD for Income Tax needs digital records from 6 April 2026 if your qualifying income was over £50,000 in 2024/25, falling to over £30,000 from April 2027 and over £20,000 from April 2028 (GOV.UK).