The basic test
Who this guide is for: For sole traders deciding which costs may reduce taxable profit — and which usually do not.
Allowable expenses can reduce taxable trading profit. Use careful wording: items in the table may be allowable depending on your facts — this is not a legal determination.
Category guide
Illustrative categories only — confirm on GOV.UK for your situation.
Commonly allowable
- Advertising; accountancy fees
- Business insurance; business bank charges
- Software subscriptions used for the trade
- Stock for resale
- Simplified expenses where you elect and qualify
May need apportionment
- Phone and internet; home-working costs
- Vehicle costs; training
- Travel with a private element
- Clothing with dual use
- Equipment with private use (capital allowances / apportionment)
Commonly not allowable
- Drawings; personal living costs
- Income Tax; National Insurance
- Ordinary commuting; everyday food
- Everyday clothing
- Fines; client entertainment in many cases
Wholly and exclusively, capital and simplified expenses
- Wholly and exclusively — the dual-purpose test is strict; apportion mixed costs fairly.
- Capital versus revenue — lasting equipment is often relieved through capital allowances, not as an immediate expense.
- Simplified expenses — HMRC flat rates for vehicles or working from home can replace detailed calculations where eligible.
- Accounting basis — when you recognise costs can depend on cash basis versus traditional accounting; see Cash Basis for Sole Traders.
Keep invoices and apportionment notes — see Business Records for Sole Traders.
Worked comparison
£8,000 turnover with £2,400.00 expenses
Tax year 2026/27 · England · engine comparison of taxable trading profit (not final tax payable).
| Gross income | £8,000.00 |
|---|---|
| Allowable expenses | £2,400.00 |
| Profit on actual expenses (key figure) | £5,600.00 |
| Profit on Trading Allowance | £7,000.00 |
Here actual expenses produce the lower taxable profit, so the allowance is usually unattractive — subject to eligibility.
Compare expenses and the Trading Allowance in the Self-Employed Tax Calculator Use the Self-Employed Tax Calculator