What Expenses Can I Claim Under MTD?
One of the most common questions from sole traders entering Making Tax Digital is: what expenses can I actually claim? The good news is that MTD does not change which expenses are allowable — the same rules that applied under Self Assessment apply under MTD. What changes is how and when you record and report them.
This article provides a comprehensive guide to allowable expenses for sole traders, so you know exactly what to claim in your quarterly updates.
The Golden Rule
An expense is allowable if it is incurred wholly and exclusively for the purposes of your business. This is the fundamental test that HMRC applies to every business expense. If an expense has a dual purpose (part business, part personal), you can usually claim the business proportion — but you need to be reasonable and able to justify the split if challenged.
MTD does not change this rule. It simply requires you to record your expenses digitally and report them quarterly rather than annually.
Allowable Expense Categories
1. Cost of Goods Sold
If you sell physical products or use materials in your work, the direct costs are deductible: - Raw materials and stock - Components and parts - Direct costs of manufacturing or production - Subcontractor costs directly related to specific jobs
For service businesses, this category may be minimal or unused.
2. Office Costs
Day-to-day costs of running your office or workspace: - Stationery and printing - Postage - Software subscriptions used for business (e.g. accounting software, design tools) - Computer consumables (ink, toner, USB drives) - Business telephone and mobile phone costs (business proportion) - Internet costs (business proportion if working from home)
3. Travel and Transport
Business travel costs are fully deductible: - Public transport fares for business journeys - Fuel costs for business mileage (actual cost method) - Simplified mileage allowance (45p per mile for the first 10,000 miles, 25p thereafter) - Parking charges for business visits - Congestion charges and tolls on business journeys - Hotel accommodation for business trips - Subsistence (meals) during overnight business trips
Important: Commuting from home to a regular place of work is not a business journey. Travel to clients, suppliers, or temporary workplaces is allowable.
4. Vehicle Expenses
If you use a vehicle for business, you have two options:
Option 1 — Simplified expenses (mileage allowance): Claim 45p per mile for the first 10,000 business miles per year, then 25p per mile. This covers fuel, insurance, repairs, and depreciation. You cannot claim these costs separately if you use simplified expenses.
Option 2 — Actual costs: Claim the business proportion of actual running costs — fuel, insurance, road tax, repairs, servicing, breakdown cover. You need to keep records of total mileage and business mileage to calculate the business percentage.
Most sole traders find the simplified mileage allowance easier to manage, especially under MTD where regular record keeping is required. If you're a gig economy worker, see our specific guide: MTD for Uber, Deliveroo, and Gig Economy Workers
5. Premises Costs
If you rent business premises: - Rent - Business rates - Utilities (gas, electric, water) - Property insurance - Security costs - Cleaning
If you work from home, see the section on home office costs below.
6. Professional Fees
Fees for professional services related to your business: - Accountancy and tax advice fees - Legal fees related to the business (not for buying property or resolving personal matters) - Professional body subscriptions and memberships - Trade journal subscriptions
7. Financial Costs
- Business bank account charges
- Interest on business loans and overdrafts
- Credit card charges on business purchases
- Hire purchase interest (on business assets)
Note: The capital repayment on loans is not a deductible expense — only the interest.
8. Marketing and Advertising
- Website hosting and domain names
- Online advertising (Google Ads, social media advertising)
- Print advertising
- Business cards and promotional materials
- Trade show or exhibition costs
9. Insurance
- Professional indemnity insurance
- Public liability insurance
- Employer's liability insurance (if you have employees)
- Business contents insurance
- Business vehicle insurance (if claiming actual costs, not simplified expenses)
10. Staff Costs
If you employ people: - Wages and salaries - Employer's National Insurance contributions - Pension contributions - Training costs for employees - Recruitment costs
11. Clothing
Business clothing is only deductible if it is: - A uniform with your business logo - Protective clothing required for your work (high-vis vests, steel-capped boots, lab coats) - Costume for performers
Everyday clothing that you also wear outside work is not deductible, even if you only bought it for business purposes. A suit for client meetings does not qualify.
12. Training
Training is deductible if it updates or maintains existing skills related to your current business. Training that teaches you a new skill unrelated to your existing business is generally not deductible. The distinction can be nuanced — if in doubt, ask your accountant.
Working From Home
If you use part of your home for business, you can claim a proportion of household costs:
Simplified Home Office Allowance
HMRC offers flat-rate amounts based on hours worked at home per month:
| Hours per month | Monthly allowance |
|---|---|
| 25-50 hours | £10 |
| 51-100 hours | £18 |
| 101+ hours | £26 |
This is simple to claim and requires no calculation of actual household costs.
Actual Cost Method
Alternatively, claim the business proportion of actual household costs: - Mortgage interest or rent (business proportion) - Council tax (business proportion) - Utilities (business proportion) - Home insurance (business proportion) - Internet (business proportion)
The business proportion is usually calculated by the number of rooms used for business divided by total rooms, adjusted for the hours of business use. This method requires more record keeping but can result in a higher claim.
What You Cannot Claim
Some expenses are explicitly not allowable:
- Personal expenses — anything not related to the business
- Entertainment — client entertaining is not deductible for sole traders (unlike for limited companies, where the treatment is different but still restricted)
- Fines and penalties — parking tickets, speeding fines, HMRC penalties
- Capital expenditure — buying equipment or vehicles is not a revenue expense (though you can claim capital allowances separately)
- Drawings — money you take out of the business for personal use
- Clothing that is not a uniform or protective wear
Recording Expenses Under MTD
Under MTD, you need to record each expense with: - The date it was incurred - The amount - The category (using HMRC's standard categories)
Your MTD software will provide the standard categories. Record expenses as they occur — weekly is a good habit — so that your quarterly updates are accurate and up to date.
For guidance on what counts as proper digital record keeping, see our article on MTD digital records.
Capital Allowances
Capital expenditure (buying equipment, vehicles, or machinery) is not claimed as a revenue expense. Instead, you claim capital allowances, which spread the tax relief over time or allow immediate deduction through the Annual Investment Allowance (AIA).
The AIA allows you to deduct the full cost of qualifying capital purchases up to £1 million per year. For most sole traders, this effectively means any equipment purchase can be deducted in full in the year of purchase.
Capital allowances are reported through your End of Period Statement or Final Declaration, not through quarterly updates. Your MTD software should guide you through this process at year end.
Making Expense Tracking Easy
The key to claiming all your allowable expenses is recording them consistently. Many sole traders miss deductions simply because they forget to record smaller expenses or lose receipts.
ClearMTD makes expense recording straightforward with clear categories that match HMRC's requirements. Enter your expenses as they happen, and your quarterly updates will be accurate and complete — maximising your legitimate deductions and minimising your tax bill.
Start your free ClearMTD account and take control of your business expenses under MTD.
Frequently Asked Questions
Has MTD changed which expenses I can claim?
No. The allowable expense rules are identical under MTD and traditional Self Assessment. MTD changes how and when you report expenses, not which expenses qualify.
Can I claim for expenses before I registered for MTD?
Yes. If you incurred business expenses before your MTD start date but within the same tax year, you can include them in your quarterly updates. Record them in your MTD software with the correct dates.
Do I need to keep physical receipts under MTD?
MTD requires digital records of transactions (dates, amounts, categories), not digital copies of receipts. However, keeping receipts (paper or photographed) is strongly recommended as evidence in case HMRC queries an expense.
Can I claim the cost of MTD software as an expense?
Yes. The cost of MTD-compatible software is an allowable business expense. It falls under office costs or professional fees. For more on affordable options, see our guide to MTD software under £10.
What if I forget to claim an expense in a quarterly update?
You can include missed expenses in a subsequent quarterly update, or adjust your figures in the End of Period Statement at year end. A missed expense in Q1 does not mean it is lost — you have until the Final Declaration to ensure your figures are complete and correct.