Expenses: tracking receipts and reclaiming VAT

Why track your expenses

Careful expense tracking gives sole traders, freelancers and small business owners three practical advantages:

• Reclaim VAT — if you're VAT-registered, you can reclaim input VAT on business purchases and reduce what you owe HMRC. Without logged expenses there's nothing to reclaim from.

• Reduce your Income Tax bill — allowable expenses are deducted from your taxable profit on Self Assessment, so every pound of legitimate expense reduces your tax.

• Understand your real cash flow — you see what your business actually costs to run and where you can trim.

What counts as an allowable expense

For a cost to be an allowable business expense, HMRC's test is that it must be incurred wholly and exclusively for the purposes of your trade. Typical examples include:

• Stock and raw materials bought to resell or use in your work

• Office supplies, software, tool subscriptions

• Fuel and running costs for a vehicle used for business

• Phone, internet and rent of business premises

• Training, books and conference attendance for your trade

• Services from accountants, solicitors, marketers and other contractors

The £1,000 trading allowance — an alternative for small earnings

If your gross self-employment income is over £1,000, you can choose to deduct the £1,000 trading allowance instead of claiming actual expenses. You can't use both — pick whichever leaves you with the lower taxable profit. The allowance suits people whose business costs are minimal (under £1,000 a year). For anyone with meaningful expenses, claiming actual costs is usually better.

What a receipt or invoice needs to contain

To support a VAT reclaim, the document must meet HMRC requirements: supplier name and VAT number (where applicable), invoice date and supply date, description of goods or services, net amount, VAT rate and amount, and gross total.

Where to find your expenses list in MyInvoiceOnline

Open your expenses list by clicking Expenses in the top navigation. You'll find every logged document in date order.

Each row shows the basics — number, supplier, date, amount and payment status. You can sort by any column using the arrows in the header, so you can quickly pull up unpaid items or expenses from a specific supplier.

How to add a new expense step by step

1. Click New expense

On the expenses list, click New expense. The expense form opens.

2. Upload a scan or photo of the receipt

We recommend starting by uploading a photo of the receipt or a PDF of the supplier invoice. The document then sits alongside the record, so you don't have to dig through folders when your accountant or HMRC asks for it.

3. Fill in the details from the document

The form has these fields:

• Document number — copy from the invoice or receipt

• Issue date — when the document was issued

• Supply date (tax point) — when the goods or services were supplied. This date determines which VAT period the expense falls into

• VAT recovery date — usually the same as the supply date, but it can differ

• Payment due date — when the document needs to be paid

• Supplier on the document — who issued it

• Expense lines with VAT — what you bought, the amount and the VAT rate

• Notes — optional, e.g. "stock for Manchester project" or "client meeting travel"

4. Save the expense by clicking Save expense

5. Mark the expense as paid

After saving, you can tick the Status column to show the document has been paid. This keeps your payment terms and cash flow view accurate.

Working with expenses in the list

Three handy options sit to the right of each expense:

• Duplicate — useful for recurring expenses (monthly subscriptions, rent). Rather than re-typing, duplicate and adjust the date and amount

• Edit — you can amend any document at any time (for example, to attach a forgotten receipt)

• Delete — removes the expense from the list

Expenses, VAT returns and MTD for Income Tax

Logged expenses are the foundation for two key HMRC obligations:

• VAT returns — if you're VAT-registered, every business purchase with input VAT you want to reclaim needs to be in your records. Your VAT return software pulls these figures to file with HMRC under Making Tax Digital for VAT.

• Self Assessment / MTD for Income Tax — from April 2026, sole traders and landlords with income over £50,000 must keep digital records and submit quarterly updates to HMRC under Making Tax Digital for Income Tax. Allowable expenses reduce your taxable profit either way — what changes is the process for recording and reporting them.

Tips for stress-free expense tracking

• Log expenses as you go, not at the year-end. A pile of stored-up receipts is demotivating and increases the chance you'll miss something

• Upload photos of receipts straight into the app. It saves time for you and your accountant — nothing to dig out later

• Double-check the VAT rate. The UK has 20 % standard, 5 % reduced and 0 % zero rates — the wrong rate skews your reclaim

• Duplicate recurring expenses. Monthly subscriptions, rent and phone contracts can be entered once and then copied each month

Frequently asked questions

Tidy expenses mean a calmer head when tax season comes round. Keep everything in MyInvoiceOnline in one place and you'll save time for yourself — and your accountant.