Allowable Expenses for UK Online Sellers: HMRC’s Rules, Line by Line

Every pound of allowable expense you claim lowers the profit you pay Income Tax and National Insurance on, so the line between "allowed" and "not allowed" is worth knowing properly. For an online seller it is also where the guesswork happens. HMRC's pages on expenses are written for every kind of self-employed person, so they say plenty about stationery, phones and train fares and almost nothing about marketplace fees, packaging or the odd costs of a reselling business. This guide goes through what HMRC does say, line by line, and is honest about where its pages go quiet.

It covers sole traders, because that is who the expenses pages are written for. If you trade through a limited company, HMRC's page says that owners of limited companies are not self-employed and deduct costs under Corporation Tax instead, which is a different set of rules.

1. The test behind every claim

HMRC's Business Income Manual explains the rule that sits behind the lists. For an unincorporated business it comes from section 34 of the Income Tax (Trading and Other Income) Act 2005, and it blocks a deduction unless the spending serves only the trade. The manual's wording is blunt: if you identify a non-trade purpose, the expenditure is not allowable. A cost with both a business and a private reason fails the test as a whole.

The manual then draws two distinctions that matter in practice:

• An identifiable part that is wholly for the trade. That part can be deducted even though the whole cost cannot. HMRC's examples are motor expenses and the business use of a home, where a review of a representative period can set a proportion that you can keep applying until circumstances change.
• An incidental benefit. A private benefit that comes along with a purely business expense does not by itself disallow it, provided no private purpose drove the spending.

GOV.UK's own page puts the practical consequence simply: where an item has both business and personal use, claim only the business portion. Its example is £200 of phone bills of which £70 is business use, which gives a £70 claim.

2. Stock and the cost of what you sell

HMRC's page on reselling goods lists the stock you buy to resell, raw materials, and the direct costs of producing goods as allowable. It lists goods or materials bought for private use, and depreciation of equipment, as not allowable. In the notes to the full self-employment pages of the tax return (the edition for the tax year to 5 April 2024, so check the current one), the box for cost of goods bought for resale or goods used covers raw materials, direct costs of producing goods sold, adjustments for opening and closing stock, and discounts. It also says that if you use the cash basis you do not need to make adjustments for opening and closing stock.

Two practical points follow for a reseller:

• If you take stock for yourself, it is not a business cost. The same notes say that if you take goods or stock out of the business, you put the normal sale price in the "goods and services for your own use" box, or, if you use the cash basis, only the disallowable amount, usually the cost.
• Where the cost of stock and when you can claim it depends on cash basis or traditional accounting, the choice is covered in our guide on cash basis or traditional accounting for a small reseller.

3. Postage, packaging and marketplace fees

This is the part of the list most readers come for, so here is exactly what the official pages say.

• Postage. HMRC's page on office costs lists "stationery and postage" as allowable. The tax return notes list postage among allowable expenses and in the phone, stationery and other office costs box.
• Packaging materials. None of the HMRC pages I read for this guide names packaging. Boxes and tape you buy to send goods you sell are, on the face of it, costs of the trade, but how to classify them is a judgement. Ask an accountant, or HMRC, rather than assume.
• Marketplace and payment fees. HMRC's expense pages do not list eBay selling fees by name. The wholly-and-exclusively test decides: a fee charged to you for making a sale is a cost of that sale, but the category it belongs in on your return is a judgement to make with an accountant if you are unsure.
• Bank and card charges. HMRC lists bank, overdraft and credit card charges as allowable financial costs.

Our guide to every eBay UK selling fee shows what each fee is, so that you can record it accurately, and why "free postage" is never free covers what postage really costs you.

Worth remembering: "not named on a GOV.UK page" is not the same as "not allowable". It means the page is silent, so the wholly-and-exclusively test decides, and you should be ready to explain your reasoning if asked.

4. The categories, one by one

The table below follows the categories on GOV.UK's self-employed expenses page, with what each page says and a note on how it applies to an online seller. "Cash basis" and "traditional accounting" differ for equipment and software, so check which you use.

On software, HMRC's page says it is an expense if you use it for under two years or pay regular licence renewals, and that other software usually falls under capital allowances, unless you use the cash basis. If you pay a monthly fee for a listing, repricing or accounting tool, that sits in the regular-renewal category on this reading.

5. Working from home: proportion or flat rate

HMRC lets you claim a proportion of heating, electricity, Council Tax, mortgage interest or rent, and internet and phone use, using a reasonable method such as rooms used or time spent working from home. Its two worked examples are: four rooms with one used only as an office and £1,120 of electricity, giving £280 (£1,120 divided by 4); and working from home one day a week, giving £40 of a £280 bill (£280 divided by 7).

The alternative is simplified expenses, which are flat rates. You can use them only if you work at least 25 hours a month from home.

The flat rate does not cover phone and internet, which you claim as the business share of actual costs. Illustrative figures to show the arithmetic: a seller who works 80 hours a month from home would claim £18 a month, which is £216 over 12 months (18 x 12), plus the business share of broadband. If that seller pays £360 a year for broadband and judges 25% of its use as business, that share is £90 (360 x 0.25), so the claim in total is £306 (216 + 90).

Vehicles

Simplified expenses for vehicles use a rate per business mile. HMRC's page gives, for the 2026-2027 tax year, 55p for the first 10,000 miles for cars and goods vehicles, 25p after that, and 24p for motorcycles. Before 6 April 2026 the first 10,000 miles was 45p. You cannot use flat rates for a vehicle if you have claimed capital allowances on it or included it as a business expense, and once you use flat rates for a vehicle you must keep using them while it is used for your business. Other travel costs, such as parking and train fares, can be claimed on top. Illustrative: 1,200 business miles in 2026-2027 at 55p is £660 (1,200 x 0.55). Flat rates are available to sole traders and partnerships with no company partners, and you must keep records of business miles.

6. What is not allowable

Across HMRC's pages, these are the clear exclusions:

• Money taken from your business for personal use.
• Goods or materials bought for private use, and depreciation of equipment.
• Fines and penalty charges for breaking the law.
• The cost of preparing and submitting your own Self Assessment return.
• Repaying the capital of a loan, overdraft or finance arrangement. Only the interest and charges are claimable.
• Commuting, meaning travel between home and work.
• Entertainment: hospitality at events, tickets to sporting, music or other entertainment events, and food or drink for clients, suppliers or customers, with exceptions such as food or drink included in a service you sell. Promotional gifts of food, drink and tobacco are also not allowable, and items you do not sell, such as keyrings, are limited to £50 per recipient per tax year if they carry your business name or logo.
• Payments to political parties, gym fees and charitable donations.
• Non-business use of premises, phones or other office resources.

Older cash basis rules capped interest claims at £500, but HMRC's Agent Update says that restriction was removed from the 2024 to 2025 return. The tax return notes (edition for the year to 5 April 2024) say that under traditional accounting, irrecoverable debts written off are claimable where the amount was in your turnover and is unpaid, while debts not included in turnover and general bad debts are disallowable.

7. The £1,000 trading allowance instead of expenses

GOV.UK describes the trading allowance as a tax exemption of up to £1,000 a year. If your gross trading income is £1,000 or less, you generally do not need to tell HMRC, but you must keep records. If it is over £1,000, you can deduct up to £1,000 instead of claiming actual expenses. If you claim the allowance you cannot also deduct other expenses or allowances for that business, and the page says that if your expenses are higher than your income, claiming expenses may be better.

For anyone buying stock to resell, actual costs usually dwarf £1,000, which is why the allowance rarely suits a dropshipper. Illustrative: turnover of £5,000 with real costs of £4,200 gives a profit of £800 by claiming expenses. Claiming the allowance instead gives taxable profit of £4,000 (5,000 - 1,000). The expense route is lower. For a sense of how this fits into your yearly return, see our Self Assessment walkthrough.

8. Evidence and mixed-use costs in practice

HMRC's trading allowance page says you must keep records of your income, such as invoices, bank statements and payment statements, and warns that HMRC can penalise inaccurate or incomplete records. If Making Tax Digital for Income Tax applies to you, HMRC says you must create digital records in compatible software, as close to the date of each transaction as possible, and still keep the original invoices and bank statements. Record each expense when it happens, note the business percentage for shared costs when you first claim them, and keep the invoice. Our bookkeeping guide for dropshippers sets out a simple monthly routine, and the timeline in our Making Tax Digital guide shows when the digital record rules reach you.

If you are VAT registered, the cash basis page says you may record income and expenses either excluding or including VAT, but you must treat both the same way. Our VAT guide for UK eBay dropshippers covers the rest.

9. Common mistakes

• Claiming 100% of a shared cost. Phones, broadband, a car and a spare room all need a defensible business proportion.
• Deducting a loan repayment. Only interest and charges are claimable.
• Claiming expenses and the trading allowance together. It is one or the other.
• Treating a silent page as a yes. If HMRC's pages do not name a cost, apply the wholly-and-exclusively test and get advice when the amount is large.
• Losing receipts. You do not send them with the return, but you must keep them in case HMRC asks.

Our guide to what counts as a business expense when you dropship applies the same ideas to the everyday costs of a dropshipping shop.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice.

• Expenses if you're self-employed (GOV.UK)
• Expenses: Reselling goods (GOV.UK)
• Expenses: Office, property and equipment (GOV.UK)
• Expenses: Legal and financial costs (GOV.UK)
• Expenses: Marketing and entertainment (GOV.UK)
• Expenses: Subscriptions (GOV.UK)
• Expenses: Travel (GOV.UK)
• Simplified expenses (GOV.UK)
• Simplified expenses: Vehicles (GOV.UK)
• Simplified expenses: Working from home (GOV.UK)
• BIM37007 Wholly and exclusively: overview (HMRC Business Income Manual)
• Tax-free allowances on property and trading income (HMRC)
• Self-employment (full) notes, edition for the year to 5 April 2024 (HMRC)
• Use Making Tax Digital for Income Tax: Create digital records (GOV.UK)
• Agent Update issue 128, cash basis changes (HMRC)
• Cash basis: How to record income and expenses (GOV.UK)

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