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 rate of £4 per week for 25+ hours, or £6 per week for 101+ hours. 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

You can claim the full cost of equipment under £500 in the year you buy it. For more expensive items, you'll typically claim capital allowances over several years:

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; installing double glazing is an improvement.

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: If you're still using spreadsheets or manual records, you need to switch to MTD-compatible software. Check our guide on the cheapest MTD software options 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

For expensive equipment and assets, you typically can't claim the full cost as an expense in year one. Instead, you claim capital allowances over several years.

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:

Your MTD software should calculate capital allowances automatically when you input asset purchases.

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

Start tracking your allowable expenses properly with MTD-compatible software. Our bridging software makes it simple to record expenses and prepare quarterly updates.

Start Free Trial

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.