As a self-employed founder in the UK you can claim tax relief on many legitimate business expenses by deducting them from your turnover before tax is calculated. Allowable expenses must be wholly and exclusively for business purposes, though some costs with mixed use can be apportioned.
Understanding what qualifies helps you keep more of what you earn, reduces your tax bill and keeps your records compliant. This guide explains the main categories, how to handle common situations such as working from home, and the practical steps you need to take to stay organised.
What counts as an allowable business expense
Allowable expenses are costs that are incurred wholly and exclusively for the purpose of running your business. Common examples for early-stage founders and e-commerce sellers include stock purchases, packaging materials, website hosting, payment processing fees, advertising, software subscriptions, accountancy fees and bank charges.
You cannot claim personal expenses or costs that have a significant private use unless you can demonstrate a clear business element. Items such as clothing are generally not allowable unless they are a uniform or protective equipment specific to your work. Always keep evidence that the expense relates to your business activity.
When in doubt, the guiding principle is whether you would still have incurred the cost if you were not running the business. If the answer is no, it is likely to be allowable.
Home office expenses for sole traders
Many self-employed founders begin by working from home. You can claim a proportion of household running costs if you use part of your home exclusively for business. Typical costs include heating, electricity, council tax, mortgage interest (not the capital repayment) and insurance.
A practical method is to calculate the percentage of your home used for work. Measure the floor area of your workspace and divide by the total floor area of the house, then apply that percentage to the relevant bills. Alternatively, HMRC provides a simplified flat-rate method that avoids detailed calculations. Choose the approach that best reflects your situation and keeps your records straightforward.
Remember that claiming home-office expenses may have implications for capital gains tax if you later sell your home. The rules in this area change, so check the latest guidance on GOV.UK before making significant claims.
Internet, phone and utility bills
Internet and phone costs are often partly private and partly business. You must therefore apportion the expense based on actual business use. Keep a record of the split, for example by noting the proportion of time or data used for business activities.
If you buy a dedicated business mobile phone or a second broadband line used only for work, you can usually claim the full cost. For combined household broadband, a reasonable percentage based on working hours or recorded usage is acceptable. The same principle applies to electricity and other utilities when working from home.
Document your reasoning. A simple note such as "60% business use based on 30 hours per week spent working out of 50 hours total online time" provides a clear audit trail if questioned.
Travel and vehicle expenses
Business travel is generally allowable. This includes train, bus, air and taxi fares when the journey is solely for business. You can also claim mileage if you use your own car. Keep a log of each trip showing date, purpose, miles travelled and destination.
Parking fees, congestion charges and tolls incurred on business journeys are usually claimable. Commuting between home and your normal place of work is not a business expense. If you work from home and travel to meet clients or suppliers, those journeys normally qualify.
For vehicle costs you can choose between claiming a flat-rate mileage allowance that covers fuel and running costs, or claiming the actual costs of fuel, insurance, servicing and depreciation. The flat-rate method is simpler for many early-stage founders but you must use the same method consistently. Rules and rates change, so always refer to current HMRC guidance.
Record-keeping requirements for sole traders
Accurate records are essential. You must keep evidence of every expense you claim for at least six years. This includes receipts, invoices, bank statements and mileage logs. Digital copies are acceptable provided they are clear and complete.
Use accounting software or a simple spreadsheet to record income and expenditure regularly. Categorise each transaction as you go so that preparing your Self Assessment tax return becomes straightforward. Separate business and personal bank accounts where possible to reduce the chance of mixing expenses.
If you register for VAT you will need even more detailed records, including VAT invoices. Even if you are not yet VAT-registered, good habits early on make scaling easier and reduce stress during any HMRC enquiry.
Common pitfalls and practical tips
One frequent mistake is claiming 100% of a mixed-use expense without evidence. Another is forgetting to exclude the private element of costs such as mobile phones or home internet. Over-claiming can lead to penalties, while under-claiming means paying more tax than necessary.
Develop a routine. Scan or photograph receipts on the day you receive them and note the business purpose immediately. Review your records monthly so you spot any missing documentation early. When buying new equipment, consider whether it qualifies as a capital asset that must be depreciated or whether it can be expensed immediately under the annual investment allowance. The thresholds for these allowances change, so check the latest information on GOV.UK.
Keep copies of your calculations for home-office percentages, mileage logs and apportionments. These working papers demonstrate that you have taken reasonable care.
Getting support as you grow
As your e-commerce business develops, professional advice can help you apply the rules correctly and plan for corporation tax, VAT registration and cash-flow management. Many founders begin as sole traders and later incorporate. Understanding allowable expenses at the self-employed stage creates a solid foundation for that transition.
Organisations such as Loomworks in West Yorkshire offer free desks, a registered address and mentoring to carefully selected early-stage founders, providing a low-cost way to work alongside other startups while you refine your financial systems.
Frequently asked questions
Can I claim my home internet bill as a business expense?
Yes, but only the business portion. Calculate a reasonable split based on working hours or data usage and keep a note of your method. A dedicated business line used solely for work can usually be claimed in full.
What records do I need to keep for travel expenses?
Maintain a mileage log or receipts showing the date, purpose of the journey, miles travelled and destination. For public transport, keep tickets or booking confirmations that demonstrate the business reason.
How do I claim home office costs without measuring my house?
You can use HMRC's simplified flat-rate method which requires no detailed calculations. Alternatively, measure the workspace area as a percentage of the whole house and apply that to relevant household bills. Choose the method that suits your situation best.
Are clothing or laptop purchases allowable for self-employed founders?
Protective clothing or uniforms required for work are usually allowable. A laptop bought specifically for business use can be claimed, either as a capital allowance or under the annual investment allowance. Personal clothing that could be worn outside work is not allowable.
How long must I keep expense records as a sole trader?
You should retain records for at least six years from the end of the tax year they relate to. This includes digital copies of receipts, invoices and your working calculations for any apportioned expenses.
Related reading: How does corporation tax work for new limited companies?, How to build a simple cash flow forecast for your startup, How to price products to achieve healthy profit margins. Browse all tax & finance guides or apply to Loomworks.