MTD Allowable Expenses: What You Can Actually Claim

MTD Allowable Expenses: What You Can Actually Claim

One of the most common mistakes people make with Making Tax Digital is either claiming too little - leaving money on the table - or claiming things HMRC would reject outright. This guide cuts through the confusion. Whether you are a sole trader, freelancer, or landlord, you will find concrete examples of what counts as an allowable expense, what does not, and how to record things correctly in your quarterly updates. No jargon, no waffle - just practical guidance you can use today.

What "Allowable Expense" Actually Means

An allowable expense is a cost you can deduct from your income before working out how much tax you owe. The basic rule from HMRC is simple: the expense must be incurred wholly and exclusively for your business or property rental. If a cost has a personal element mixed in, you cannot usually claim the whole thing - only the business portion.

In your MTD quarterly updates, you report your income and expenses for each three-month period. The expenses you record reduce your taxable profit at the end of the year. Getting this right every quarter means there are no nasty surprises when you file your final tax return.

Allowable Expenses for Sole Traders and Freelancers

Home Office Costs

If you work from home, you can claim a portion of your household running costs. This includes heating, electricity, broadband, and even rent or mortgage interest if you use part of your home exclusively for work.

The simplest approach is HMRC's flat rate, also called the simplified expenses method. You claim a set amount based on how many hours per month you work from home:

• 25 to 50 hours per month: £10
• 51 to 100 hours per month: £18
• 101 or more hours per month: £26

These are fixed monthly amounts - no receipts required for the actual bills. You just need a record of your working hours.

Alternatively, you can calculate the actual proportion. For example, if your home has five rooms and you use one solely for work, you could claim one fifth of your heating and electricity bills. This method requires receipts and takes more time, but sometimes produces a higher deduction.

For a deeper look at splitting costs between personal and business use, see Mixed-Use Expenses and MTD: Claiming the Business Percentage.

Phone and Broadband

If you use your personal mobile phone for business calls, you can claim the business proportion of the bill. Keep a note of roughly what percentage of your usage is work-related. Many people estimate this honestly - say 50% - and claim that portion.

If you have a dedicated business phone, you can claim 100% of the cost.

Broadband works the same way. If you use it for both personal and business purposes, claim only the business proportion. If you pay for a separate business broadband line, that is fully claimable.

Travel and Mileage

Business travel is claimable - getting to a client site, attending a meeting, or visiting a supplier. Commuting from home to a fixed place of work is not claimable, but most sole traders and freelancers do not have a fixed workplace in the traditional sense, so this is rarely an issue.

For car journeys, the simplest method is the HMRC approved mileage rate. This is currently 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile after that. You do not need to track fuel receipts - just log the date, destination, reason, and miles for each business journey.

You cannot use both the mileage rate and claim actual car running costs. Pick one method and stick to it. The mileage rate is usually easier and works well for lower mileage. See Mileage Allowances for MTD: Claiming Simplified Rates in Q1 for more detail.

Equipment and Tools

Laptops, monitors, cameras, tools, specialist equipment - if you buy something to use in your business, it is generally claimable. Small items you buy and use up quickly (like printer paper or USB cables) count as regular expenses. Larger items that last several years (like a laptop) are technically capital assets, but most sole traders can use the Annual Investment Allowance to deduct the full cost in the year of purchase rather than spreading it over time.

Keep your receipts. For anything over £50, it is worth storing a digital copy.

Software and Subscriptions

Business software subscriptions are claimable - project management tools, design software, accounting software, cloud storage, anything used solely or mainly for work. Your MTD bridging software subscription, for example, is a legitimate business expense.

Marketing and Advertising

Website costs, domain names, online advertising, business cards, printed materials - all allowable. If you pay someone to design your website or run your social media, those fees are claimable too, as long as they relate to your business.

Professional Fees

Accountant fees, bookkeeper fees, legal fees related to your business - these are all allowable. Even the cost of tax advice directly related to your self-employment is claimable.

Training and Learning

Training that helps you do your existing work better is claimable. For example, a freelance designer paying for a course on a new design tool, or a self-employed bookkeeper doing a refresher course. What is not claimable is training that would qualify you for an entirely new career - that is considered personal development rather than a business expense.

Allowable Expenses for Landlords

If you rent out property, you have your own set of allowable expenses. These reduce your rental profit before tax. You report them separately to your self-employment income in your quarterly updates if you have both income types.

Repairs and Maintenance

Fixing a broken boiler, repainting walls between tenancies, repairing a leaking roof - genuine repairs and maintenance costs are fully claimable. The key word is "repair" - restoring something to its original condition. Replacing a worn-out bathroom with an equivalent standard bathroom counts as a repair.

Improvements are different. Adding an extension or upgrading a basic kitchen to a luxury one is a capital improvement, not a repair, and works differently for tax purposes.

Letting Agent Fees

If you use a letting agent to manage or find tenants, their fees are fully allowable. This includes tenant-find fees, management fees, and any inventory or check-in charges they pass on to you.

Buildings Insurance

Landlord buildings insurance and contents insurance for furnished properties are claimable. Standard home insurance on a property you live in is not - it must be insurance specific to the rental property.

Mortgage Interest (Partial Relief)

This one catches people out. You cannot deduct mortgage interest as an expense in the same way you could before 2020. Instead, you get a tax credit worth 20% of your mortgage interest. This means higher-rate taxpayers pay more tax on rental income than they used to. It is worth understanding the difference when you are working out your expected tax bill.

Utilities and Council Tax (When You Pay Them)

If your tenancy agreement means you pay the council tax, gas, electricity, or water rather than the tenant, you can claim those costs. If the tenant pays them directly, you cannot.

For a full breakdown of landlord-specific expenses, see What Counts as a Landlord Expense in Your Q1 MTD Quarterly Update.

Common Myths: What You Cannot Claim

Myth 1: "Work Clothes Are Claimable"

This is probably the most common misconception. Everyday clothing is not an allowable expense, even if you only wear it for work. HMRC's test is whether the clothing could be worn outside of work. A suit, smart trousers, or a shirt - even if you only buy it for client meetings - does not qualify.

What is claimable is genuinely specialist clothing that you cannot wear anywhere else - a nurse's uniform, a branded workwear top your employer requires, safety equipment like hard hats or steel-capped boots. If it is purely functional protective gear, it counts. If you could wear it at the weekend, it does not.

Myth 2: "Client Entertainment Is Claimable"

Taking a client to dinner or buying tickets to an event is not an allowable expense in the UK. HMRC specifically disallows client entertainment and hospitality. This catches a lot of people out because it feels like an obvious business cost. The rule is clear though - it does not matter how legitimate the relationship, entertainment is not deductible.

Meals while travelling overnight for work are different - subsistence costs when you are away from home for business purposes do qualify. Keep those receipts and note the business reason.

Myth 3: "I Can Claim for Gifts to Clients"

Gifts to clients are generally not allowable. There is a very narrow exception: gifts worth £50 or less per recipient per year, where the gift carries a conspicuous advertisement for your business (like a branded notebook or pen), and the gift is not food, drink, or tobacco. In practice, this exception is so narrow that most people are better off not bothering to claim gifts at all.

Myth 4: "My Whole Broadband Bill Is a Business Expense"

Unless you have a dedicated business broadband line, you cannot claim the full cost. The personal use element has to be excluded. This applies equally to phone bills. Claim the business proportion only, and keep a note of how you arrived at that percentage.

Myth 5: "I Can Claim the Cost of My Commute"

Travel between your home and a regular, fixed workplace is not claimable. For most sole traders this is not relevant because they work from home or have no fixed workplace. But if you have a studio, workshop, or office you rent separately and travel there daily, those journeys are not claimable.

What Counts as "Mixed Use" and How to Handle It

Many real-world expenses are split between personal and business use - your phone, your car, your home broadband. You cannot claim the personal portion, but you can claim a reasonable estimate of the business proportion.

Be consistent. If you decide your phone is 60% business use, apply that percentage every quarter. Do not change it without a genuine reason. HMRC expects you to have made a reasonable, honest estimate and to stick to it.

If you have both self-employment income and rental income, you also need to be careful about which expenses sit with which income type. A laptop used for your freelance work is a self-employment expense, not a landlord expense. Mixing them up can cause problems at year-end. See Mixed Income MTD: Which Expenses Count for Self-Employment vs Property for how to separate them correctly.

How to Record Expenses for Your Quarterly Updates

You do not need to attach receipts to your MTD quarterly updates. But you must keep the underlying records in case HMRC asks. The most practical approach is:

1. Keep digital copies of receipts - a photo on your phone is fine.
2. Record each expense with a date, amount, supplier, and brief description of the business purpose.
3. Categorise expenses correctly - HMRC uses specific expense categories in quarterly updates, such as office costs, travel, advertising, and professional fees.
4. Reconcile your records against your bank statement at least once a quarter.

If you have a large number of expenses to enter, you can import them using a CSV file rather than typing each one manually. AffordableMTD supports CSV import with AI-assisted categorisation, which suggests the right expense category for each line. See Import Your Expenses Fast: CSV Upload and AI Categorisation Guide for how that works.

For a full list of what to gather before filing, see the Sole Trader Q1 MTD Filing Checklist. And if you want to know exactly which sections your quarterly update contains, What to Include in Your MTD Quarterly Update: The Bare Essentials walks through each one.

If You Have Made a Mistake in a Previous Update

Claimed something you should not have, or missed an expense you could have included? You can amend a quarterly update after submitting it. See Amend Your MTD Quarterly Update After Submission: Step-by-Step for how to do this. It is straightforward and there is no penalty for correcting genuine errors.

A Quick Summary

Allowable expenses reduce your taxable profit - but only if they are genuinely for business use. Claim what you are entitled to, keep records to back it up, and be honest about any personal element in mixed-use costs. The areas most people get wrong are work clothes (not claimable), client entertainment (not claimable), and mixed-use items claimed at 100% when only a proportion is legitimate. Get these right and your quarterly updates will be accurate, your records will be clean, and your year-end declaration will reflect what you actually owe - no more, no less.