Self-employed expenses under MTD: which category do your costs go in?

Under Making Tax Digital for Income Tax, you keep digital records of your income and expenses and send HMRC four quarterly updates each tax year. An update does not list every receipt. It sends your income and your expenses totalled by category, so each cost you record needs a home.

If your turnover is under £90,000, you can skip the categories and send one expenses total instead: see consolidated expenses.

If you are new to the overall process, What is Making Tax Digital covers the basics. This guide is about sorting the costs themselves.

The expense categories

The categories follow HMRC’s self-employment (SA103) boxes, which you may recognise from Self Assessment. Typical examples:

• Cost of goods or materials: stock you resell and materials used up in jobs, such as cable, timber or fabric.
• Payments to subcontractors: what you pay other self-employed people to do part of your work.
• Wages and staff costs: pay for employees, including apprentices on your payroll.
• Car, van and travel: fuel, vehicle insurance and repairs, train fares, or simplified mileage instead (see below).
• Rent, rates, power and insurance: workshop or unit rent, business rates, heating and lighting for business premises, and business insurance such as public liability cover.
• Repairs and maintenance: fixing tools, equipment or premises you use for the business.
• Phone, stationery and admin: the business share of your phone and broadband, printing, postage and software subscriptions.
• Advertising and marketing: your website, directory listings, flyers and online ads.
• Bank and loan interest: interest on business loans and finance used for the business.
• Accountancy, legal and professional fees: your accountant, solicitor or other professional advisers.
• Other allowable business expenses: genuine business costs that do not fit elsewhere, such as trade body subscriptions.

Some costs could arguably sit in two places. What matters most is that the cost is allowable and that you treat similar costs the same way each time.

Costs that are partly personal

A phone you also use for family calls, a car you drive at weekends, or a spare room you work from: these are mixed costs, and you claim only the business part. If roughly 60% of your phone use is for work, you claim 60% of the bill.

Use a sensible, consistent method you could explain if HMRC asked, such as a log of business calls or miles.

What you cannot claim

Two things often catch people out.

Depreciation. You may write down the value of your van or tools in your own accounts, but depreciation is not an allowable expense, so it does not go in any category. The cost of a van, tools or equipment can usually be claimed through capital allowances instead, and an accountant can help you work out the amounts.

Business entertaining. Taking a client or contractor for lunch, or buying them drinks, is not allowable even when it is clearly for business reasons. Events for your own staff are treated differently.

If you work under the Construction Industry Scheme, the 20% (or 30%) your contractor deducts is not an expense either. It is tax already paid that counts towards your tax bill. Your income goes in your update as the gross amount before deductions, and the deductions are recorded separately.

Mileage instead of actual vehicle costs

For a car or van you can use HMRC’s simplified mileage rate in place of claiming fuel, insurance, repairs and other running costs for that vehicle. The rate is 45p a mile for the first 10,000 business miles in the tax year and 25p a mile after that.

So 12,000 business miles in a year would give 10,000 × 45p = £4,500, plus 2,000 × 25p = £500, a total of £5,000. Mileage goes in car, van and travel. You use one method or the other for a vehicle, so you would not also claim its fuel bills.

Worked example: Sarah’s first quarter

Sarah is a self-employed electrician using standard update periods. Her first update covers 6 April to 5 July. She records these costs:

She also bought a contractor lunch for £38. That is entertaining, so it stays out. The depreciation on her van in her own spreadsheet stays out too.

Fixing a cost in the wrong category

Quarterly updates are cumulative. As GOV.UK puts it, each update covers “from the start of the tax year to the end of the update period, not just the previous three months”.

That makes mistakes easy to put right. Say Sarah realises in August that a £150 van service went into repairs and maintenance when it should not have been claimed at all, because she uses mileage. She corrects her records, and her second update, covering 6 April to 5 October, carries the corrected year-to-date totals. There is no need to panic about an earlier update. Your figures can also be adjusted before you submit your tax return after the year ends. If you are unsure about a particular cost, your accountant can review your records before then.

Keeping it manageable

Categorising as you go is far easier than sorting a quarter’s receipts the night before a deadline. Quarterwise uses the categories listed above, which follow HMRC’s self-employment boxes, and keeps CIS deductions apart from your income. On the Pro plan it can suggest a category for each transaction and capture receipts from your phone, though you can always choose the category yourself.

This guide is general information, not tax advice.

Common questions

Last updated 6 October 2026. Quarterwise is software, not a tax adviser — if you’re unsure how the rules apply to you, check with HMRC or a qualified accountant.