How to keep expenses as a sole trader: a simple system that works

Why keeping good expense records saves you real money

Every pound you spend on genuine business expenses reduces your taxable profit. If you are a sole trader paying the basic 20% income tax rate plus 9% Class 4 National Insurance (6% above £50,270), that is a 29% saving for every pound of legitimate expense you claim. On £10,000 of genuine business expenses, that is £2,900 you keep rather than hand to HMRC.

The problem is that most self-employed tradespeople are not keeping track properly. They have a rough idea of what they spend but cannot tell you within £500 what their fuel costs, material purchases, or tool costs were last year. When Self Assessment time comes, they either miss expenses they could have claimed or spend days digging through bank statements trying to remember what transactions were for.

What expenses to track

For a self-employed tradesperson, claimable business expenses typically include:

• Materials and consumables used on jobs
• Tools and equipment (either as an expense or capital allowance)
• Vehicle costs (fuel, servicing, insurance, MOT, breakdown cover) — either actual costs or HMRC mileage rate of 45p per mile for first 10,000 miles
• Van purchase (through Annual Investment Allowance)
• Work clothing and PPE (not ordinary clothing, only functional protective items)
• Phone bill (business proportion)
• Business insurance (public liability, tools, employers liability)
• Training and qualifications directly related to your trade
• Professional fees (accountant, invoicing software)
• Advertising and marketing costs
• Bank charges on your business account

For a full breakdown, see our guide to allowable expenses for self-employed tradespeople.

The simplest system that actually works

You do not need expensive software or a complex spreadsheet. The basics are: capture every business purchase at the time it happens, categorise it, and store the receipt or evidence. Here is a system that takes less than 5 minutes a day:

1. Open a separate business bank account. Put all business income in and pay all business costs from it. This one step makes your records enormously cleaner. Starling, Monzo, and HSBC Kinetic all offer free sole trader accounts.
2. Use a simple spreadsheet or app. Log each expense: date, supplier, description, category, amount. Even a basic Google Sheet with columns for each category works fine for most sole traders. Free apps like Receipts by Wave or Money Manager also work well.
3. Photograph receipts immediately. Use your phone's camera and store them in a folder on Google Drive or Dropbox. Paper receipts fade and get lost. A photo is accepted by HMRC as a valid record.
4. Reconcile monthly. At the end of each month, cross-check your spreadsheet against your bank statement. Catch anything you missed while the memory is fresh.

When to use invoicing and expense software

A spreadsheet works well until your income grows and transactions become numerous. Once you are dealing with 30 or more transactions a month, dedicated software pays for itself in time saved. InvoiceAdept lets you scan receipts, track expenses by category, create invoices, and keep MTD-ready records automatically. It is built specifically for UK tradespeople and sole traders — no accountant jargon, no unnecessary complexity.

Making Tax Digital for Income Tax (MTD ITSA) requires sole traders with income over £50,000 to submit quarterly updates digitally from April 2026, and those with income over £30,000 from April 2027. The earlier you move to a digital system, the less disruptive the transition will be. See our guide to MTD for sole traders for more detail.

How long to keep records

HMRC requires sole traders to keep records for at least 5 years after the 31 January submission deadline for the relevant tax year. For a 2025/26 tax return filed in January 2027, keep those records until at least January 2032. Records can be digital. Store them somewhere with a backup — cloud storage like Google Drive is ideal.

The most common expense mistakes

The most common expense mistakes sole traders make: claiming personal costs as business expenses (HMRC investigates this and it can lead to penalties); missing genuine claimable costs because there was no receipt; not claiming vehicle mileage because it seems complicated (it is not — the free mileage calculator does the work for you); and leaving expenses until Self Assessment time instead of tracking monthly. Fix these four habits and your tax bill will fall and your records will be cleaner.