Every pound you claim in allowable expenses is a pound that isn't taxed. For a sole trader paying 20% basic rate income tax and Class 4 National Insurance, a £500 claim can easily be worth £150 or more in your pocket. For a limited company, it reduces your corporation tax bill. Yet plenty of small business owners either miss legitimate costs or claim things they shouldn't, simply because nobody ever explained where the line sits.

This guide walks through the everyday costs HMRC generally accepts, the ones it doesn't, and how to keep records that hold up if anyone ever asks.

The golden rule: wholly and exclusively

Nearly everything in this article flows from one phrase in the tax rules: an expense must be incurred wholly and exclusively for the purposes of your trade. If a cost has a personal element, you can only claim the business portion — and you need to be able to justify how you split it.

There's a second test too: the expense must be revenue rather than capital, or fall into a specific capital allowance. Buying a laptop is capital; paying for cloud storage is revenue. Both can give you tax relief, but they arrive on your return in different places.

And one important quirk: you can't claim an expense just because it's helpful to you personally. It has to be for the business. A suit you only wear for client meetings is usually fine; a suit you also wear to weddings is not.

Everyday costs you can usually claim

Most small businesses will recognise this list. If it's genuinely for the trade, it's very likely allowable.

• Office and admin costs: stationery, printer ink, postage, software subscriptions, bank charges on a business account, accountancy fees and bookkeeping software.
• Marketing: website hosting, domain names, printing flyers, paid advertising, photography for your product range, and the cost of a stand at a trade fair.
• Travel: train fares, parking, congestion charges, hotel stays and subsistence on business trips. You can also claim mileage for using your own vehicle — at the time of writing, 45p per mile for the first 10,000 miles in a car or van, then 25p thereafter.
• Training: courses that update or refresh skills you already use in the business. Training that qualifies you for a brand new trade is a different matter.
• Insurance and professional fees: public liability cover, professional indemnity, commercial vehicle insurance, and subscriptions to trade bodies.
• Staff costs: wages, employer's National Insurance, pension contributions and subcontractor invoices for work done in your business.
• Materials and stock: anything you buy to resell, plus raw materials and components used in what you make.

A useful habit is to ask of any purchase: "Would I have bought this if I didn't run the business?" If the answer is no, it's probably allowable — at least in part.

What you can't claim

Some costs trip people up every year, and putting them through your accounts creates risk for very little reward.

• Ordinary commuting between home and a permanent workplace. This is the classic one. Travel to a temporary site, a client's office or a one-off event is usually fine; the daily drive to your usual base is not.
• Entertaining clients. Business entertaining is specifically disallowed for tax purposes. Entertaining your own staff is a separate category and often allowable within limits, so keep the two apart in your records.
• Personal clothing that could be worn outside work, unless it's a uniform or protective clothing.
• Fines and penalties, including parking tickets and late filing penalties.
• Drawings. Taking money out of the business as a sole trader isn't an expense — it's a withdrawal of profit.
• Your own wages as a sole trader, though a limited company director's salary paid through PAYE is a legitimate business cost.

Mixed-use costs: home, phone, broadband and vehicles

Working from home is where most people need a bit of judgement. There are two mainstream approaches.

The first is simplified expenses, a flat monthly deduction based on how many hours you work from home. It's quick, requires no receipts and HMRC accepts it without argument.

The second is apportionment: take your actual household bills — heating, electricity, water, broadband, council tax — and claim the percentage that reflects genuine business use. Counting rooms and hours gives you a defensible figure. A spare bedroom used as your main office two or three days a week might justify somewhere between 10% and 25% of running costs, depending on the property.

For phones, a business-only contract is straightforward. If you use one handset for everything, work out the business share of calls and data and claim that proportion. Broadband follows the same logic.

With vehicles, you generally choose between claiming mileage or claiming a proportion of actual running costs. Mileage suits most sole traders because it's simple and the rate covers wear and tear. Actual costs can work better for a heavily used van or a company car, but you must pick an approach and stick with it for that vehicle.

Keeping records that support every entry

Good records are what turn a reasonable claim into an unarguable one. HMRC expects you to keep supporting documents for at least six years after the 31 January filing deadline for that tax year, and digital records are perfectly acceptable.

• Keep the paperwork. Receipts, invoices and bank statements, scanned or photographed the day you spend the money. Blurry photos in a folder called "tax stuff" are better than nothing, but a proper system is better still.
• Annotate anything unclear. A card receipt that says only "£84.20" tells nobody anything. Add who you met, what it was for and which project it related to.
• Separate business and personal spending. A dedicated business bank account, even a free one, removes most of the guesswork.
• Record your mileage contemporaneously. A note of date, destination and purpose takes seconds and saves hours later.
• Reconcile monthly. Twenty minutes a month beats a frantic weekend before your filing deadline.

Finally, don't overlook the trading allowance. If your total business income is £1,000 or less, you may be able to ignore expenses altogether and simply report the income. And if your affairs are at all complicated — multiple income streams, a mix of home and business costs, or a business that's growing — a good accountant usually pays for themselves several times over in claims you'd never have found on your own.