When you submit a quarterly update under Making Tax Digital, HMRC expects your expenses to be filed into 13 standard categories. These categories are not optional groupings — they are the structure your MTD software uses when transmitting data to HMRC.
Getting expenses into the right category matters less for your tax calculation (the total deduction is the same regardless) and more for avoiding unnecessary queries from HMRC. If your figures look unusual for your trade — say, a freelance consultant claiming £8,000 in construction industry costs — it may attract attention.
This guide walks through all 13 categories with practical examples and the mistakes most commonly made in each. For a broader overview of what you can and cannot claim, see What Expenses Can I Claim Under MTD?.
The 13 HMRC Expense Categories at a Glance
| # | Category | What goes in it |
|---|---|---|
| 1 | Cost of goods sold | Raw materials, stock, direct production costs |
| 2 | Construction industry costs | CIS subcontractor payments |
| 3 | Staff costs | Salaries, wages, pensions, employer's NI |
| 4 | Travel costs | Business travel, fuel, parking, public transport |
| 5 | Premises running costs | Rent, rates, utilities, property insurance |
| 6 | Repairs and maintenance | Repairs to business property and equipment |
| 7 | Admin costs | Phone, internet, stationery, software |
| 8 | Advertising and marketing | Ads, website costs, promotional materials |
| 9 | Interest on loans | Business loan and overdraft interest |
| 10 | Bank and financial charges | Bank fees, card charges, foreign exchange costs |
| 11 | Professional fees | Accountant, solicitor, professional subscriptions |
| 12 | Depreciation and loss of assets | Capital allowances, asset disposals |
| 13 | Other expenses | Any other allowable expense not covered above |
Category 1: Cost of Goods Sold
This covers the direct costs of producing or acquiring the goods you sell. If you are a baker, it is flour, butter and packaging. If you are an eBay reseller, it is the wholesale cost of your stock.
Common mistake: Including tools or equipment here. A plumber's pipe fittings are cost of goods sold; the plumber's pipe wrench is a capital purchase (category 12) or a repair/replacement (category 6).
Category 2: Construction Industry Costs
This is exclusively for payments made to subcontractors under the Construction Industry Scheme (CIS). If you are not in the construction industry, this category will always be zero.
Common mistake: Including general building maintenance. If you pay a builder to repair your office roof, that is category 6 (repairs and maintenance), not construction industry costs — unless you are a CIS contractor and the builder is a registered subcontractor.
Category 3: Staff Costs
Salaries, wages, employer's National Insurance contributions, pension contributions, and employee benefits. This includes temporary and part-time staff.
Common mistake: Including your own drawings or salary. As a sole trader, money you take from the business is drawings, not a staff cost. Only payments to employees go here.
Category 4: Travel Costs
Business journeys by any mode — car, train, bus, taxi, bicycle, or plane. This includes fuel (if claiming actual vehicle costs), parking, congestion charges, and tolls. Hotel and meal costs during overnight business trips also fall here.
If you use your personal vehicle for business, you can claim either actual costs or the simplified mileage allowance (45p per mile for the first 10,000 miles, 25p thereafter). You cannot use both methods for the same vehicle.
Common mistake: Claiming the daily commute. Travel from home to a fixed place of work is commuting, not business travel. Travel to client sites, temporary workplaces, or suppliers is allowable.
Category 5: Premises Running Costs
Rent, business rates, utility bills, property insurance, and cleaning costs for business premises. If you work from home, you can claim either the simplified flat-rate allowance or the business proportion of household running costs — but not both.
Common mistake: Including mortgage capital repayments. Only the interest portion of a mortgage is allowable (and only the business proportion if working from home). The capital repayment is not an expense.
Category 6: Repairs and Maintenance
Repairs to business property, equipment, and vehicles. This covers fixing or restoring an asset to its previous condition — not improving or upgrading it.
Common mistake: Claiming improvements as repairs. Replacing a broken window is a repair. Installing double glazing where single glazing existed is an improvement (capital expenditure). The distinction matters: repairs are revenue expenses claimed in full; improvements are capital expenditure claimed through capital allowances.
Category 7: Admin Costs
The day-to-day running costs of your business administration: phone bills, internet (business proportion), stationery, postage, printer ink, software subscriptions, and computer consumables. Your MTD software subscription goes here.
Common mistake: Including equipment purchases. A new laptop is capital expenditure (category 12), not an admin cost. A replacement keyboard or mouse, however, is an admin cost.
Category 8: Advertising and Marketing
All promotional spending: online ads, print advertising, business cards, website hosting and design, social media promotion, trade show fees, and branded merchandise.
Common mistake: Including client entertainment. Taking a client to dinner is not advertising — and client entertaining is not an allowable expense for sole traders at all.
Category 9: Interest on Loans
Interest paid on business loans, overdrafts, and hire purchase agreements. Only the interest portion qualifies — not the capital repayment.
Common mistake: Including personal loan interest. If you took a personal loan and used part of it for business purposes, only the interest on the business portion is claimable. You need records to support the split.
Category 10: Bank and Financial Charges
Bank account fees, transaction charges, credit card fees, PayPal or Stripe processing fees, and foreign exchange costs on business transactions. If you are a landlord with a separate property bank account, the fees on that account go here.
Common mistake: Confusing this with interest on loans (category 9). Bank charges are flat fees for services. Loan interest is the cost of borrowing. They go in different categories.
Category 11: Professional Fees
Accountancy fees, legal fees related to the business, professional body subscriptions, and trade journal subscriptions. Fees for specialist advice — tax consultations, employment law advice, health and safety assessments — also belong here.
Common mistake: Including legal fees for personal matters or property purchases. Only fees directly related to business operations qualify. Conveyancing fees for buying business premises are capital costs, not professional fees.
Category 12: Depreciation and Loss of Assets
This is where capital allowances are reported. It covers the cost of business equipment, vehicles, and machinery that you claim through the Annual Investment Allowance (AIA) or writing-down allowances. Asset disposals and losses also sit here.
Capital allowances are not reported in your quarterly updates — they are calculated at year end and included in your Final Declaration. Your MTD software will guide you through this.
Common mistake: Trying to include capital purchases in quarterly updates. Record them in your software, but they are submitted at year end, not quarterly.
Category 13: Other Expenses
A catch-all for allowable expenses that do not fit neatly into categories 1-12. Examples include trade-specific costs, specialist insurance, and one-off business expenses. Use this sparingly — most expenses have a natural home in one of the first 12 categories.
Common mistake: Using "other" as a dumping ground. If HMRC sees a large proportion of your expenses in "other," it suggests poor record keeping. Always use the specific category where one exists.
What You Cannot Claim in Any Category
Regardless of which category you might try to file them under, these expenses are never allowable:
- Personal expenses — anything not wholly and exclusively for business
- Client entertaining — meals, drinks, or hospitality for clients
- Fines and penalties — parking tickets, late-payment penalties, HMRC fines
- Your own salary or drawings — sole traders are not employees of their business
- Clothing — unless it is a branded uniform or protective workwear
For the full list, see the allowable expenses guide for sole traders.
Get Your Categories Right from the Start
ClearMTD maps your expenses to HMRC's 13 categories automatically, so you never have to guess where something goes. Enter your expenses as they happen, and your quarterly updates will be filed with the correct categorisation every time.
Sign up for ClearMTD and take the guesswork out of expense categorisation.
Frequently Asked Questions
Are MTD expense categories the same as Self Assessment categories?
They map closely to the Self Assessment boxes on the SA103 form, but MTD groups them into 13 defined categories for quarterly updates. The underlying tax rules are identical — it is the reporting structure that differs.
What happens if I put an expense in the wrong category?
Putting an expense in the wrong category does not change your total profit or tax bill, because all allowable expenses are deducted from income regardless of category. However, consistent miscategorisation may trigger HMRC queries, so it is worth getting it right.
Do I need to use all 13 categories?
No. Most sole traders use only five or six categories. If you have no expenses in a category, leave it at zero. A freelance writer, for example, is unlikely to have construction industry costs.
Can I create my own sub-categories within the 13?
Your MTD software may let you tag or sub-categorise expenses for your own records, but your quarterly submissions to HMRC must use the 13 standard categories. Any internal labels are for your benefit only.
Where do capital allowances go in the 13 categories?
Category 12 — Depreciation and loss/disposal of assets — is where capital allowances sit. However, capital allowances are calculated and reported in your Final Declaration, not in quarterly updates. Your software will handle this at year end.
