How to Track Business Expenses as a UK Freelancer
The basic rule: profit, not turnover
If you earn £45,000 in a year and spend £6,000 on allowable business costs, you pay tax on £39,000, not £45,000. At the 20% basic rate that saves you £1,200 of income tax, and it also reduces the profit that Class 4 National Insurance is charged on. Every allowable pound you fail to record is a pound you pay tax on unnecessarily — which is why tracking expenses is worth real money, not just admin.
HMRC’s test for whether a cost counts is that it was incurred wholly and exclusively for the purposes of the trade. A laptop you use only for client work counts in full. A phone you use 70% for business and 30% for personal life counts at 70%: GOV.UK’s own example is a £200 phone bill with £70 of business calls, of which you claim £70. Money you take out of the business for yourself is never an expense.
There is one alternative to tracking expenses: the £1,000 trading allowance. If your total self-employed income in the year is under £1,000 you do not need to report it at all, and if it is over £1,000 you can choose the flat £1,000 allowance instead of adding up your expenses — but you cannot use both. If your real expenses are more than £1,000, tracking them properly is worth more.
What counts as an allowable expense?
GOV.UK lists the categories. The table below covers the ones freelancers actually use, with the limits HMRC applies.
| Category | What you can claim | Watch out for |
|---|---|---|
| Office costs | Stationery, printing, phone bills, broadband (business share), software subscriptions | Claim only the business share of mixed-use bills |
| Travel | Fuel, parking, train and bus fares for business journeys; vehicle running costs or mileage | Travel between home and a regular workplace is not claimable; keep a mileage log |
| Stock and materials | Things you buy to sell on, raw materials, direct costs of what you produce | Keep supplier invoices, not just card statements |
| Advertising and marketing | Website costs, hosting, portfolio site, business cards, online ads | Entertaining clients is NOT allowable |
| Training | Courses that keep your existing skills current | Training for a completely new trade is generally not allowable |
| Insurance and finance | Professional indemnity, public liability, bank charges on the business account | Personal bank charges are not claimable |
| Working from home | Simplified flat rate or a share of actual household costs | Flat rate: £10, £18 or £26 a month depending on hours worked at home |
| Clothing | Protective clothing, uniforms, safety boots and hard hats | Everyday clothing is NOT allowable, even if you only wear it for work |
Things HMRC says no to, every time: everyday clothing, entertaining clients, fines and penalty charges, gym membership, the cost of preparing your own Self Assessment return, and anything purely personal. If you are unsure about an item, the safe approach is to leave it out and ask an accountant — an incorrect claim costs more in penalties than the tax it saved.
Simplified expenses: flat rates instead of receipts
For three things, HMRC lets you use a flat rate instead of adding up your actual costs. For working from home, the flat rate is £10 a month if you work 25 to 50 hours a month at home, £18 for 51 to 100 hours, and £26 for 101 hours or more. For vehicles, the mileage rate from 6 April 2026 is 55p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that (it was 45p before 6 April 2026). Once you use the flat mileage rate for a vehicle, you keep using it for as long as that vehicle is in the business. There is also a flat rate for living at your business premises, which matters mainly for guest houses and care homes.
Flat rates are simpler, but not always cheaper. If your real home-office costs are higher than £26 a month, working out the actual share of rent, heating and electricity may save more tax — but it needs proper records and a defensible calculation. Most freelancers start with the flat rates and only switch to actual costs when the numbers justify the extra work.
Making Tax Digital: the April 2026 change
Making Tax Digital (MTD) for Income Tax changes how sole traders report, not how much tax they pay. From 6 April 2026, sole traders and landlords whose qualifying income was over £50,000 in the 2024/25 tax year must keep their business records digitally in MTD-compatible software and send HMRC a summary every quarter — four quarterly updates plus one Final Declaration each year — instead of reporting the year only once on a Self Assessment return. Qualifying income is your turnover before expenses, not your profit: £52,000 of invoiced work with £10,000 of costs still puts you over the line.
The thresholds then fall: over £30,000 (measured on 2025/26) from 6 April 2027, and over £20,000 (measured on 2026/27) from 6 April 2028. If your turnover is under £50,000 now, you are not in MTD yet — but you probably will be within two years, so choosing MTD-compatible software now saves a forced switch later. You cannot submit MTD updates through HMRC’s own website; you need HMRC-recognised software. Our invoicing tools comparison lists which tools are MTD-compatible.
One more thing that has not changed: the tax itself. You still pay once, by 31 January after the tax year ends, and the return for 2026/27 is due by 31 January 2028. MTD only changes how the figures reach HMRC during the year.
How to track expenses in practice
The system that works is the one you actually use every week. A good weekly routine takes about fifteen minutes:
- Separate the money. Use a separate bank account or card for the business. When business and personal spending share one account, every month-end becomes a detective exercise, and HMRC checks get harder.
- Capture it at the time. Photograph every receipt the day you get it — a photo or PDF counts as a record, you do not have to keep the paper. Apps from the invoicing tools in our comparison do this automatically.
- Sort it the same day. Put each cost into one of the HMRC-style categories in the table above, and note the business purpose in a few words (“train to client meeting in Leeds” beats “travel”).
- Reconcile monthly. Once a month, check the total against your bank statement, chase any missing invoices, and set aside tax. A rough rule: put aside 25% to 30% of each payment you receive until you know your real rate.
- Keep everything for 5 years. Records must be kept for at least 5 years after the 31 January submission deadline for that tax year. Records for 2025/26 (return due 31 January 2027) must be kept until at least 31 January 2032.
Cash basis is the default for sole traders since 6 April 2024: you record income when the money arrives and expenses when you pay them. That is simpler than traditional accounting, and it is what most freelancers should use unless their accountant advises otherwise.
Monthly expense tracking template
Copy this table into a spreadsheet and fill in one row per month. The “tax saved” column is a reminder of why the work matters: at the 20% basic rate, every £100 of allowable expenses saves about £20 of income tax.
| Month | Income received | Office & software | Travel & mileage | Marketing | Other allowable | Total expenses | Profit (income − expenses) |
|---|---|---|---|---|---|---|---|
| April 2026 | £ | £ | £ | £ | £ | £ | £ |
| May 2026 | £ | £ | £ | £ | £ | £ | £ |
| June 2026 | £ | £ | £ | £ | £ | £ | £ |
| July 2026 | £ | £ | £ | £ | £ | £ | £ |
| August 2026 | £ | £ | £ | £ | £ | £ | £ |
| September 2026 | £ | £ | £ | £ | £ | £ | £ |
| October 2026 | £ | £ | £ | £ | £ | £ | £ |
| November 2026 | £ | £ | £ | £ | £ | £ | £ |
| December 2026 | £ | £ | £ | £ | £ | £ | £ |
| January 2027 | £ | £ | £ | £ | £ | £ | £ |
| February 2027 | £ | £ | £ | £ | £ | £ | £ |
| March 2027 | £ | £ | £ | £ | £ | £ | £ |
| Year total | £ | £ | £ | £ | £ | £ | £ |
Worked example: a designer earns £3,800 in April, spends £60 on software, £95 on travel and £40 on marketing. Total expenses £195, profit £3,605. Over a full year at that pace, expenses of about £2,340 save roughly £468 of income tax at 20% — plus a smaller saving on Class 4 National Insurance. That is the return on fifteen minutes a week.
Related: Best Invoicing Tools for Freelancers · Contractor Calculator · Income Tax Calculator 2026/27
Sources: GOV.UK “Expenses if you’re self-employed”; GOV.UK “Business records if you’re self-employed” (how long to keep records); GOV.UK “Find out if and when you need to use Making Tax Digital for Income Tax”; GOV.UK simplified expenses guidance. Checked 13 November 2026.