Now that MTD for Income Tax has been mandatory since April 2026, you're keeping digital records and preparing for quarterly updates. But which expenses can you actually claim to reduce your tax bill? Get this wrong, and you might miss out on legitimate deductions or face penalties for claiming what you shouldn't.

This guide covers every allowable expense for sole traders and landlords under MTD. We'll show you what HMRC accepts, common mistakes to avoid, and how to keep records that satisfy MTD requirements. Whether you're claiming office costs or rental property expenses, you'll know exactly what's allowed.

MTD Expense Rules: The Basics

Under MTD, the fundamental rule for allowable expenses hasn't changed from traditional tax returns. An expense must be:

What has changed is how you record these expenses. You must use MTD-compatible software and keep digital records from the point of transaction. No more shoeboxes full of receipts at year-end.

The expenses you can claim depend on whether you're a sole trader or landlord. Let's break down each category.

Sole Trader Allowable Expenses

As a sole trader, you can claim expenses that are necessary for running your business. Here are the main categories HMRC accepts:

Office and Business Premises

If you work from home, you can claim a proportion of household expenses. Use HMRC's simplified expenses flat rate: £10 a month for 25-50 hours of home working, £18 for 51-100 hours, or £26 for 101+ hours (this doesn't cover phone or internet, which you claim separately). Alternatively, calculate the actual business proportion of your home costs.

Travel and Motor Expenses

You can claim business travel costs, but not your daily commute to a regular workplace. Allowable travel includes:

For motor expenses, use either:

Professional Services and Training

Marketing and Administration

Equipment and Supplies

Most sole traders use the cash basis, which is the default from 2024-25. Under the cash basis you deduct most equipment (computers, tools, furniture) as an expense when you pay for it, whatever it costs. Cars are the main exception: you claim them through capital allowances or use simplified mileage. If you use traditional (accruals) accounting, equipment goes through capital allowances instead - usually the Annual Investment Allowance, which gives full relief in the year of purchase. Capital allowances are an annual adjustment, not a quarterly update figure. Typical equipment includes:

Note: The Annual Investment Allowance lets you claim up to £1 million on most business equipment in the year of purchase. This applies to sole traders as well as companies.

Landlord Allowable Expenses

As a landlord, your allowable expenses relate to managing and maintaining your rental properties. The key categories are:

Property Maintenance and Repairs

Remember: repairs are allowable, but improvements aren't. Fixing a broken window is allowable; adding an extension is an improvement. HMRC treats replacing single glazing with double glazing as a repair (PIM2030), because it's the modern equivalent.

Property Management

Insurance and Safety

Utilities and Services

If you pay utilities directly (rather than the tenant), you can claim:

Finance Costs

Since April 2020, you can't deduct mortgage interest directly from rental income. Instead, you get a tax credit worth 20% of your finance costs. You can still claim:

Travel and Professional Services

Warning: The mortgage interest restriction is a common source of confusion. You cannot deduct mortgage interest from rental income like other expenses. You get a 20% tax credit instead, which may result in higher tax bills for higher-rate taxpayers.

Mixed-Use Expenses: Business and Personal

Many expenses have both business and personal elements. You can only claim the business proportion. Common examples include:

For Sole Traders

For Landlords

Keep clear records showing how you calculated business proportions. HMRC may ask for your working during an enquiry.

What You Cannot Claim

Some expenses might seem business-related but aren't allowable under tax rules:

Never Allowable

Commonly Misunderstood

MTD Record-Keeping Requirements

Under MTD, you must keep digital records of all income and expenses. This means:

What Records to Keep

How to Keep Them

You must submit quarterly updates showing income and expenses. The first quarter deadline after MTD mandation is 7 August 2026, covering the period 6 April to 5 July 2026.

Note: Spreadsheets are still allowed under MTD if you link them to HMRC with bridging software. Paper records are not. Check our guide on MTD software price comparison to find something suitable for your budget.

Common Expense Mistakes to Avoid

Based on HMRC enquiries and penalties, these are the most common mistakes people make with business expenses:

Claiming Personal Expenses

The biggest error is claiming personal costs as business expenses. This includes:

Poor Documentation

Timing Issues

Calculation Errors

Working with Capital Allowances

If you use the cash basis (the default for most sole traders), you deduct most equipment as an expense when you pay for it and only need capital allowances for cars. If you use traditional accounting, you claim capital allowances instead. They are calculated once a year, as an annual adjustment before your final declaration.

Annual Investment Allowance (AIA)

You can claim up to £1 million per year on most business equipment through AIA. This covers:

Writing Down Allowances

For assets not covered by AIA, you claim writing down allowances:

You enter capital allowances as an annual adjustment before your final declaration, not in your quarterly updates.

When to Seek Professional Advice

While this guide covers common expenses, tax rules can be complex. Consider consulting an accountant if you:

The cost of professional advice is itself an allowable expense for your business.

Get Your MTD Records Right

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Understanding allowable expenses is crucial for MTD compliance and minimising your tax bill. Whether you're claiming office costs as a sole trader or property expenses as a landlord, the key is proper documentation and clear business purpose. Keep digital records from day one, separate business from personal expenses, and when in doubt, get professional advice. With the right approach, you'll stay compliant with MTD requirements while claiming every expense you're entitled to.