As a sole trader you pay tax on your profit: your income minus allowable expenses. Two choices affect how much you can deduct. For some costs you can use HMRC's flat rates, called simplified expenses, instead of working out actual costs. And under the cash basis, which is now the default, equipment you buy is usually just an expense. Making Tax Digital does not change what you can claim, but it does change how you record it.
What counts as an allowable expense
Costs incurred wholly and exclusively for your business. Where something is used privately as well, such as a phone or a car, you can only claim the business part. HMRC's list includes office costs, travel, uniforms, staff costs, stock and materials, financial costs such as insurance and bank charges, business premises costs, advertising and business training.
You cannot claim expenses if you use the £1,000 trading allowance instead. For small incomes, compare the two and use whichever is better.
Simplified expenses: HMRC's flat rates
Simplified expenses are optional flat rates for three kinds of cost. Every other expense is claimed at actual cost.
Vehicles
| Vehicle | 2026/27 rate per business mile | Before 6 April 2026 |
|---|---|---|
| Cars and goods vehicles, first 10,000 miles | 55p | 45p |
| Cars and goods vehicles, after 10,000 miles | 25p | 25p |
| Motorcycles | 24p | 24p |
The flat rate replaces the actual cost of buying and running the vehicle, but you can still claim parking and other travel such as train fares. 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 that vehicle.
Working from home
If you work at least 25 hours a month from home: £10 a month for 25 to 50 hours, £18 for 51 to 100 hours, and £26 for 101 hours or more. The flat rate does not cover phone or internet costs, which you can still claim at the business proportion of the actual bill.
Living at your business premises
For businesses such as a small guest house, a flat monthly amount for private use is taken off the premises costs: £350 for one person, £500 for two and £650 for three or more.
Flat rate or actual costs?
- High-mileage, cheap-to-run vehicle: the mileage rate often gives more, and is much less record-keeping.
- Expensive vehicle or low mileage: actual costs plus capital allowances may give more.
- Working from home a few days a month: the flat rate is simple; a larger share of the home used for work may justify working out actual costs.
HMRC's simplified expenses checker compares the two for your figures.
Cash basis and equipment
Since 6 April 2024 the cash basis has been the default for sole traders. You record income when you receive it and expenses when you pay them. Under the cash basis, equipment you buy to keep and use in the business, such as a laptop, tools or a van, is claimed as a normal expense rather than through capital allowances; cars are the exception and go through capital allowances. The old £150,000 turnover limit for using the cash basis applied before 2024/25. You can choose traditional accounting instead, for example if you carry a lot of stock.
What Making Tax Digital changes
- Record as you go. Each expense needs a digital record with the amount, the date and the category, in time for the quarterly update covering it.
- Mixed-use costs. HMRC lets you record only the business part, or the whole cost and the private part, or the whole cost and adjust the category total at the year end.
- Simplified expenses. If you are sure you will use a flat rate, you do not need digital records of the actual costs it replaces. If you are not sure, record the actual costs and adjust before you finalise your tax position.
- Capital allowances are claimed through your software before you submit your tax return.
More on the routine in our sole trader bookkeeping guide.
In VoxaMTD
VoxaMTD imports your transactions through open banking or a CSV or Excel upload, and AI suggests an expense category for each one for you to check. Sending your quarterly updates to HMRC is free. The mileage tracker is on the paid plans.
Rates are taken from HMRC's guidance as at 27 September 2026. This is general information, not tax advice. Check GOV.UK or speak to a tax adviser about your own circumstances.