What can a tradesman claim on tax? Overheads for sole traders and Ltd companies

A trade business can deduct any cost it pays for business purposes: materials, subcontractors, van running costs, insurance, tools, PPE, phone, accountant, software and marketing. Sole traders deduct them from profit before Income Tax and Class 4 National Insurance; a limited company deducts them before Corporation Tax. Personal costs, fines, client entertaining and loan repayments are not allowed.

What counts as an allowable expense?

An allowable expense is a cost you pay to run the business. HMRC's list for the self-employed covers office costs, travel, work clothing, staff and subcontractors, goods and materials, financial costs such as insurance and bank charges, premises, advertising, subscriptions and business training.

For a mixed-use cost you claim the business part. HMRC's own example: a £200 phone bill with £70 of business calls means you claim £70. The same applies to a van you also use at weekends, and to broadband at home.

Two things stop you claiming at all. Money you take out for yourself is drawings, not an expense. And if you use the £1,000 trading allowance, you can't also claim expenses, so it only suits someone with tiny side income.

The trade overheads checklist

Use this at year end, or better, each month when you file receipts. It covers the costs small trade firms most often pay and sometimes forget.

What can't you claim?

These come up on almost every trade firm's books and are not deductible.

Promotional giveaways with your logo, such as branded pens or diaries, are allowed up to £50 per recipient per tax year, but food, drink and tobacco are not. A Christmas do for staff is generally allowed because employees are the main attendees.

Vans, cars and big tools: expense or capital allowance?

It depends on whether you are a sole trader on the cash basis, a sole trader on traditional accounts, or a limited company.

Sole traders on the cash basis. The cash basis is now the standard method for sole traders and partnerships. On it, a van or a big tool you buy is an ordinary expense in the year you pay for it. Cars are the exception: they still go through capital allowances.

Traditional accounts and limited companies. Vans, plant and equipment go through capital allowances. The Annual Investment Allowance lets you deduct up to £1 million of qualifying plant and machinery in the year you buy it, which covers any small trade firm's van and kit purchases. Cars don't qualify for AIA; they get writing down allowances instead.

Mileage instead of actual costs. A sole trader can claim a flat 55p a mile for the first 10,000 business miles in a car or goods vehicle from 6 April 2026, up from 45p, and 25p after that. If you've already claimed capital allowances on a vehicle, you can't switch it to the flat rate, and once you use the flat rate for a vehicle you must keep using it for that vehicle.

Home to site. GOV.UK lists travel between home and work as not allowable. How that applies when you drive to a different customer's house each day, or to a yard, depends on your pattern of work. Ask your accountant how your journeys are treated before you claim them.

What forgotten receipts cost you: a worked example

A sole trader roofer, not VAT-registered, on the cash basis, with £84,000 of turnover in 2026 to 2027. Here's a full year of expenses against the income.

Worked example

Sole trader roofer, £84,000 turnover, 2026 to 2027

Every receipt filed, every overhead claimed.

Materials and skipsfor jobs	£31,000
Subcontractorslabour-only, gross	£8,000
Van lease£450 × 12	£5,400
Fuel, parking, van insurance and repairs	£4,900
Public liability insurance	£1,450
Hand tools, PPE and workwear	£2,120
Phone and broadband, business share	£540
Accountant	£1,200
Software	£600
Marketing and website	£1,800
Trade body and training	£650
Bank and card charges	£180
Working from home, flat rate£18 × 12 months	£216
Total expenses	£58,056
Taxable profit£84,000 − £58,056	£25,944
Income Tax20% × (£25,944 − £12,570)	£2,674.80
Class 4 National Insurance6% × (£25,944 − £12,570)	£802.44
Tax and NI on the profit	£3,477.24

Now say the insurance, £620 of the tools and PPE, the phone share, the trade body and training, the bank charges and the home office flat rate never made it to the accountant. That's £1,450 + £620 + £540 + £650 + £180 + £216 = £3,656 of real costs left out. Profit rises to £29,600, and tax and NI to £4,427.80. The missing receipts cost £950.56, which is 26p for every pound left unclaimed.

The bigger cost is what you can't see. A firm that doesn't capture its costs doesn't know what each job made either. Job costing uses the same receipts.

I don't know if I'm making money on jobs.

His admin had been "a bit of a shambles", with supplier bills arriving by email, post and on the counter at the merchant. Once those bills went into Xero automatically and were matched to jobs, he could see cost per job and the year-end claim was complete without a weekend of sorting receipts.

Is it different for a limited company?

The principle is the same: a company deducts costs incurred wholly and exclusively for the business. The differences that matter for a small trade firm:

• Tax rate. The company pays Corporation Tax: 19% on profits of £50,000 or less, 25% above £250,000, with marginal relief in between.
• Your salary is a company cost. A director's salary goes through payroll and, with employer's National Insurance, is a business cost. Dividends are not: they come out of profit after Corporation Tax.
• Capital items. Vans and equipment go through capital allowances, usually the AIA, because companies can't use the cash basis.
• Mixed use needs care. Money the company pays out for you that isn't salary, dividend or a business expense is treated as a director's loan, with its own tax rules. Get your accountant to set the rules once.

If you're thinking of going limited, read our guide to running costs and admin first.

How long should you keep the receipts?

Sole traders must keep records for at least five years after the 31 January submission deadline for the tax year. For the 2026 to 2027 tax year, filed by 31 January 2028, that means keeping them until at least 31 January 2033. Filing each receipt against the bill in your bookkeeping software as it arrives is easier than sorting a carrier bag of them in January.

If you spot something you forgot after filing, you can amend a Self Assessment return within 12 months of the filing deadline.

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Where Nexley fits

Nexley is the AI back office for UK trade firms: five AI assistants run your tenders, quotes, buying, scheduling and invoicing. It connects to the tools you already work in, you run it all from WhatsApp, and you approve everything. £799 a month.

Nexley picks up supplier bills and receipts from email, WhatsApp photos and merchant accounts, codes them and matches them to the job, so the overheads are in the books as they happen. Anything it isn't sure about, such as whether a purchase is business or personal, it asks you on WhatsApp before posting. You and your accountant still decide what gets claimed.

Start 7 days freeSee cashflow and Xero

Common questions

Sources

1. GOV.UK: Expenses if you're self-employed
2. GOV.UK: Car, van and travel expenses
3. GOV.UK: Clothing expenses
4. GOV.UK: Marketing, entertainment and subscriptions
5. GOV.UK: Legal and financial costs
6. GOV.UK: Simplified expenses, vehicles
7. GOV.UK: Simplified expenses, working from home
8. GOV.UK: Capital allowances
9. GOV.UK: Taking money out of a limited company
10. GOV.UK: Annual Investment Allowance
11. GOV.UK: Self-employed National Insurance rates
12. GOV.UK: Corporation Tax rates
13. GOV.UK: How long to keep your records

Every rule, rate and date above was checked against these sources on the date shown at the top.