How to Claim Tax Deductions and Save Money as a Sole Trader

byDaniel Greenaway/Published:17th November 2025/inContractors, Expenses, Running a business, Self Employed

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As a sole trader in the UK, every penny counts and one of the simplest ways to keep more of your hard-earned income is by making sure you’re claiming the right tax deductions.

HMRC allows sole traders to deduct a wide range of allowable business expenses, but many business owners either aren’t aware of everything they can claim or feel unsure about whether an expense qualifies. The consequence is almost always the same: you end up paying more tax than you need to.

This post looks at the essentials of sole trader tax deductions – what they are, how they work in practice, and how to claim them correctly. Whether you’re a freelancer, contractor, or running a small business from home, understanding the rules can help you reduce your tax bill, improve cash flow, and stay compliant with HMRC’s reporting requirements.

If you want to go deeper into related topics, you may also find these guides useful:

Let’s break it down clearly, confidently, and in plain English – so you can claim the tax reliefs you’re entitled to and avoid leaving money on the table.

What Are Tax Deductions for Sole Traders?

A tax deduction is an allowable business expense that reduces the amount of profit you pay tax on. Instead of being taxed on your full income, HMRC only charges tax on your taxable profit that’s your income minus any legitimate business costs.

In other words, if an expense is wholly and exclusively for business purposes, it’s usually deductible. This principle is set out clearly in HMRC’s guidance, making it the key test for deciding whether something can be claimed.

Example:

Turnover: £50,000
Allowable expenses: £12,000
Taxable profit = £38,000

In this scenario, you would pay Income Tax and National Insurance on £38,000 – not the full £50,000. Understanding and applying the rules correctly means you keep more of your earnings while staying fully compliant with HMRC requirements.

For more detail on how taxable profit is calculated, see HMRC’s guidance on allowable expenses for the self-employed.

Common Sole Trader Tax Deductions

HMRC allows sole traders to claim a wide range of allowable expenses to reduce their taxable profit – provided they’re used wholly and exclusively for business. Here are the most common categories UK sole traders can legitimately deduct:

Business Premises and Office Costs

Rent, utility bills, and business rates (if you operate from business premises)
Office supplies such as stationery, phone costs, and internet
Repairs and maintenance for dedicated business spaces

Travel and Vehicle Costs

Mileage allowance (45p per mile for the first 10,000 miles, then 25p thereafter)
Fuel, parking, insurance, MOT, servicing, and repairs (if not using mileage rates)
Public transport for business-related journeys
Taxis or ride-hailing services for client meetings and business events

Clothing and Equipment

Protective clothing required for your trade
Uniforms with branding
Tools, machinery, and equipment essential for your work
Computers, software subscriptions, printers, and office furniture

Marketing and Advertising

Website development, hosting fees, and domain renewals
Digital advertising (Google Ads, Facebook Ads, LinkedIn campaigns)
Printed materials like flyers, banners, business cards
Sponsorships, networking events, and promotional activities

Training and Professional Fees

Training courses that improve your current business skills (HMRC does not allow training for new trades)
Professional memberships or subscriptions (e.g. trade associations)
Accountancy fees, legal advice, and bookkeeping support

Home Office Costs

A proportion of household bills (electricity, heating, council tax, internet) if you work from home
Alternatively, you can use HMRC’s simplified flat-rate allowance based on hours worked from home

Financial Costs

Business bank charges and payment processing fees
Interest on business loans or finance agreements
Business insurance policies such as public liability or professional indemnity

View HMRC’s full list of allowable expenses for more details.

How to Claim Sole Trader Tax Deductions

Claiming expenses correctly is all about being organised, understanding HMRC’s rules, and using the right tools. Below is a more detailed, expert-backed process to help you stay compliant, avoid mistakes, and confidently claim every deduction you’re entitled to.

Keep Accurate, HMRC-Ready Records

Store every receipt, invoice, mileage log, and bank statement. HMRC can request evidence for up to 6 years.
Digital records aren’t just recommended, they’re required under Making Tax Digital (MTD) for many businesses.
Apps and cloud tools like Xero, QuickBooks, FreeAgent, or The Balance App can automatically pull bank transactions, categorise expenses, and store digital receipts.
Use a mileage tracking app rather than guessing distances – HMRC expects accurate logs.
Create a monthly “expense check-in” to catch errors early and keep your books tidy throughout the year.

Separate Business and Personal Costs

Use a dedicated business bank account – it’s not a legal requirement for sole traders, but it massively reduces errors and makes claims easier.
Keep personal and business purchases separate to avoid HMRC questioning your claims.
For mixed-use items (e.g. phone or internet), calculate a fair and reasonable business percentage – HMRC often checks this area.

Submit Deductions Through Self Assessment

Enter your allowable expenses in the “Self-Employment” section of your Self Assessment tax return.
HMRC’s online system does the tax calculations for you once your income and expenses are entered.
Use HMRC’s official guidance on allowable expenses: Allowable expenses for the self-employed.
File early (from April onwards). Filing early isn’t the same as paying early, but it gives you time to fix mistakes and plan for the tax bill.
Keep copies of your submitted return and calculations – handy if HMRC queries something later.

Maximise Your Claims With Professional Support

An accountant can identify claims you may miss (home office, pre-trading expenses, capital allowances, mileage vs. actual costs).
They’ll also ensure borderline expenses are claimed correctly, reducing the risk of penalties or disallowed claims.
Professional help is especially valuable if your business has mixed-use assets, capital purchases, or fluctuating income.

Getting your claims right can significantly reduce your tax bill and there’s no reason to leave money unclaimed. Our team at Accounting Wise helps sole traders across the UK save money, stay compliant, and take the stress out of tax returns.

Get in touch for friendly, expert support.

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Tips to Save Even More

Once you’ve mastered the basics of allowable expenses, there are a few extra tactics that can help sole traders reduce their tax bill even further without crossing into risky territory. Here are some simple but powerful ways to maximise your tax efficiency:

Claim every small expense – they add up.
Even low-value purchases like stationery, software subscriptions, mileage, or small tools are fully deductible if used for business. Consistency is key.
Don’t forget mileage and home office allowances.
These are two of the most commonly missed claims for sole traders. You can use HMRC’s simplified mileage rate or actual vehicle running costs, and either the home-working flat rate or a proportional claim on household bills.
Check whether large purchases qualify for capital allowances.
Equipment such as laptops, machinery, tools, and office furniture may be claimed under the Annual Investment Allowance (AIA), giving you 100% relief in the same tax year.
If you’re VAT-registered, reclaim VAT on business purchases.
VAT-registered sole traders can recover VAT on most goods and services used for their business. This applies whether you’re on the standard VAT scheme or the Flat Rate Scheme (with limitations).

Smart record-keeping, consistent logging, and understanding which rules apply to you can make a noticeable difference to your end-of-year tax bill. If you’d like help reviewing your expenses or getting set up with cleaner bookkeeping systems, our team at Accounting Wise is here to guide you.

Common Mistakes Sole Traders Make

Even with the best intentions, many sole traders miss out on legitimate tax savings or accidentally make claims that HMRC could question later. Here are some of the most frequent pitfalls and how to avoid them:

Not keeping receipts or proof of purchase.
HMRC expects clear evidence for every claim. Lost receipts, missing invoices, or vague records make it harder to justify your expenses if asked. Digital storage is perfectly acceptable, and cloud accounting tools can automate much of this.
Over-claiming personal items (e.g. clothes, meals, holidays).
Personal expenses even if loosely connected to your business will not qualify unless they pass HMRC’s wholly and exclusively test. This is a key area of HMRC scrutiny, especially around clothing, travel, and mixed-use items.
Forgetting one-off costs like insurance or subscriptions.
Annual payments such as public liability insurance, professional memberships, software renewals, or website hosting are easy to overlook. These are fully deductible and can make a big difference to your taxable profit.
Leaving expenses unclaimed out of fear of “getting it wrong.”
Many sole traders underclaim because they’re unsure what qualifies. This conservative approach means paying more tax than necessary – something easily avoided with basic guidance or help from an accountant.

If you’re uncertain about what you can claim, our tax specialists at Accounting Wise can review your expenses, tidy up your records, and make sure you’re claiming every deduction legally available to you.

Conclusion

Claiming tax deductions for sole traders doesn’t have to be complicated – it simply comes down to understanding what HMRC allows and keeping clean, accurate records. When you take the time to track your expenses properly and apply the rules consistently, the savings can be significant, often running into the hundreds or even thousands of pounds each year.

Far too many sole traders miss out on legitimate tax reliefs either because they’re unsure what qualifies or they’re worried about making a mistake. With the right guidance, you can reduce your tax bill with complete confidence and stay on the right side of HMRC’s rules.

At Accounting Wise, we work with sole traders across the UK to help them maximise their allowable expenses, improve their record-keeping, and stay compliant under Self Assessment and Making Tax Digital. Whether you need help setting things up properly or want an expert to review your claims, we’re here to support you.

Talk to Accounting Wise today and make sure you’re not leaving money on the table.

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Sole Trader Tax Deductions FAQ

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What counts as an allowable expense for a sole trader?

Allowable expenses are costs that are wholly and exclusively for business use. This includes travel, equipment, software, marketing, home office costs, and professional fees. Personal or mixed-use items may only be partly claimable.

Can I claim expenses without receipts?

You need proof of purchase to justify your claims. HMRC accepts digital copies, bank statements, invoices, and mileage logs. Without evidence, your claim could be challenged.

Can I claim clothing as a business expense?

Only specialised or protective clothing qualifies (e.g. safety boots, branded uniforms). Everyday clothing — even if worn for work — is not allowable.

How do I claim home office expenses?

You can either claim a proportion of household bills (based on business use) or use HMRC’s simplified flat-rate allowance based on hours worked from home.

Should I use mileage or actual vehicle costs?

You can choose either the HMRC mileage rate (45p per mile up to 10,000 miles) or claim a proportion of actual running costs. Mileage is simpler; actual costs can sometimes produce a larger deduction.

Can I claim meals and subsistence?

Yes — but only for business travel away from your normal place of work. Everyday lunches or coffees are not allowable.

Do I need an accountant to claim expenses?

Not strictly, but an accountant can ensure you’re claiming everything correctly and legally, reducing the risk of errors and potentially saving you more than their fee.

What happens if I overclaim an expense?

If HMRC identifies an incorrect or excessive claim, they may request repayment and could impose penalties. Good record-keeping and professional advice help avoid this.

Can I claim expenses before I start trading?

Yes. Pre-trading expenses incurred up to seven years before your start date can be claimed, provided they are solely for the business.

How do I claim tax deductions on my Self Assessment?

You enter your expenses into the “Self-Employment” section of your tax return. HMRC automatically calculates your taxable profit based on your income and allowable expenses.

Glossary of Key Sole Trader Tax Terms

Allowable Expenses – Business costs that are “wholly and exclusively” for work, which you can deduct from your income to reduce your taxable profit.

Taxable Profit – The amount you pay tax on. Calculated as total income minus allowable business expenses.

Self Assessment – HMRC’s system for reporting your income and expenses each tax year. Sole traders use it to calculate and pay Income Tax and National Insurance.

National Insurance Contributions (NICs) – Payments made by sole traders that count towards benefits and the State Pension. Typically includes Class 2 and Class 4 NIC.

Capital Allowances – Tax relief on larger business purchases, such as equipment, machinery, and office furniture. Often claimed through the Annual Investment Allowance (AIA).

Annual Investment Allowance (AIA) – A form of capital allowance that lets you deduct the full cost of qualifying equipment up to the annual limit.

Flat Rate Expenses – HMRC’s simplified method for claiming certain costs (e.g. home office or mileage) instead of calculating actual proportions.

Mileage Allowance – HMRC’s fixed-rate deduction for business travel using your personal vehicle: 45p per mile for the first 10,000 miles, then 25p thereafter.

Pre-Trading Expenses – Costs incurred before you officially start your business. These can be claimed in your first year of trading if they were solely for the business.

MTD (Making Tax Digital) – The government initiative that requires many businesses to keep digital records and submit tax information using HMRC-approved software.

HMRC – His Majesty’s Revenue & Customs, the UK government department responsible for tax collection and compliance.

Subsistence – Food and drink costs that you can claim when travelling for business away from your normal place of work.

Dual-Use Expenses – Costs that have both personal and business use (e.g. phone or internet). Only the business portion can be claimed.

Business Records – The receipts, invoices, mileage logs, and financial documents you must keep to support your expense claims.

Simplified Expenses – An optional method provided by HMRC allowing sole traders to use flat rates for vehicle, home office, and accommodation costs.

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