In short
- A cost is allowable when it’s wholly and exclusively for your business.
- Costs used partly for yourself are split by the business share.
- Flat rates for mileage and working from home save you adding up the real costs.
You pay tax on profit: what came in, minus allowable expenses. Every allowable cost you record is profit you don’t pay tax on. Every personal cost you record by mistake is a question from HMRC waiting to happen. Here’s how to tell them apart.
The test: wholly and exclusively
A cost is allowable when you spent it only to run your business. Software you use for client work, materials for a job, your accountant’s fee: allowable. Your lunch on a normal working day, your everyday clothes, a parking fine: not allowable, even though you were working at the time.
| Cost | Usually | HMRC category |
|---|---|---|
| Materials and stock you sell | Allowable | Cost of goods |
| Phone, broadband, software, stationery | Allowable (business share) | Office costs |
| Train fares and hotels for work trips | Allowable | Car, van and travel |
| Advertising and your website | Allowable | Advertising |
| Accountant’s fees | Allowable | Professional fees |
| Bank charges on a business account | Allowable | Bank and finance charges |
| Entertaining clients | Not allowable | Business entertainment |
| Everyday clothes, commuting, fines | Not allowable | Not a business expense |
Things you use for both
A phone you use for work and home, a car, a room in your house: you can claim the business share. Pick a fair way to measure it (calls, miles, hours) and use it consistently. If 60% of your phone bill is work, record the whole bill and mark 60% as business.
- Phone contract, £36, 60% business
- £21.60
- Broadband, £30, 40% business
- £12.00
- Design software subscription
- £24.00
- Working from home, 60 hours this month (flat rate)
- £18.00
- Allowable this month
- £75.60
Example figures. The business shares are your own judgement; keep a note of how you arrived at them.
Flat rates instead of real costs
For some costs you can use HMRC’s simplified expenses: a flat rate instead of working out the real figure.
| What | Flat rate |
|---|---|
| Business miles in your own car or van | 45p a mile for the first 10,000 miles in the tax year, 25p after |
| Working from home, 25 to 50 hours a month | £10 a month |
| Working from home, 51 to 100 hours a month | £18 a month |
| Working from home, 101 hours or more a month | £26 a month |
One method per vehicle. If you use mileage rates for a vehicle, you can’t also claim its fuel, insurance or repairs. Once you choose a method for a vehicle, you keep it for as long as you use that vehicle in the business.
The £1,000 trading allowance
If your costs are very small, you can take £1,000 off your income instead of claiming actual expenses. It suits small side earnings. If your real allowable costs are more than £1,000, claim them instead.
If you’d have bought it anyway, it probably isn’t a business expense. If you bought it only because of the work, it probably is.
Rates, thresholds and dates in this guide are as of 14 October 2026. They’re illustrative: rules change, so check with your accountant before a big decision. It’s general information, not tax or legal advice.
Rates shown are illustrative and are checked against gov.uk before launch.