Cost of goods sold
for sole traders

Cost of goods bought for resale or goods used is box 17 on the full self-employment pages. It covers the direct costs of what you sell: stock, raw materials, ingredients, materials used on jobs, commissions and discounts. Taxi drivers and haulage businesses also put fuel here. On traditional accounting, the figure is adjusted for opening and closing stock.

What goes in this category

• Goods bought for resale and raw materials.
• Direct costs of producing goods sold.
• Commissions and discounts.
• Fuel for taxi, minicab and road haulage businesses.

What does not

• Goods and materials bought for private use.
• Depreciation of equipment.
• Equipment you keep, which is capital.
• General overheads, such as rent and phone costs.

Items in this category

Direct and indirect costs

Cost of goods is for costs that go directly into what you sell: the stock itself, the materials for a job, the ingredients for a cake. Overheads that support the business generally, such as rent, insurance and marketing, go in their own boxes. The split matters for your gross profit, which is a useful measure of how your pricing works.

Stock adjustments

On traditional accounting, cost of goods sold is opening stock plus purchases minus closing stock. The closing stock is valued at the lower of cost and net realisable value. On the cash basis, there is no adjustment: purchases are deducted when paid.

Goods for own use

Goods taken from stock for yourself or as gifts to friends must be treated as sales at their normal selling price. That adds back the profit you would have made, not just the cost.

Taxi and haulage fuel

The SA103F notes tell taxi and minicab drivers and road haulage businesses to put fuel in box 17 rather than with vehicle costs, box 20. It is the same expense, but in a different box because fuel is a direct cost of what they sell.

Subcontracted work

Payments to subcontractors for construction work go in box 18, not here. Other subcontracted direct work, such as a printer used by a designer, can go here as a direct cost, or in staff costs, box 19. Choose one and be consistent.

Commissions and platform fees

Sales commissions, including marketplace commissions, can go here as a direct cost of sales. Card processing fees are financial charges, box 26. Declare gross sales, not net of commission.

Lost, stolen and damaged stock

Stock that is stolen, damaged or spoiled is still a cost of the business. On traditional accounting it is excluded from closing stock; on the cash basis it has already been deducted. Insurance pay-outs are income.

Gross profit margin

Your gross profit is sales minus cost of goods. Tracking it helps you price well and spot problems, such as materials costs rising faster than prices. Our profit margin calculator works it out from your figures.

Import costs and duty

If you import stock, the cost includes shipping, freight insurance, import duty and customs clearance fees. Import VAT is reclaimable if you are VAT registered, so the stock cost is net of it; if you are not registered, import VAT is part of the cost. Currency conversion fees on paying overseas suppliers are financial charges, but the sterling cost of the goods is what goes in this box.

Dropshipping and print on demand

If a supplier ships directly to your customer, the amount you pay the supplier for each order is your cost of goods, and the full price the customer paid is your sale. Print-on-demand and dropshipping platforms often show only the margin; rebuild the gross figures from their statements so both sales and cost of goods are complete.

Food businesses and waste

For cafés, caterers and food producers, ingredients, packaging and food that is thrown away unsold are all part of the cost of goods. Staff meals taken from stock are a staff cost rather than a sale. Food you take home for your own family must be added back as a sale at its selling price, like any other goods taken for own use.

Returns and supplier credits

Goods you return to suppliers, and credit notes you receive, reduce your purchases. Rebates and volume discounts from suppliers reduce the cost of goods too, even if paid as a lump sum after the year end. Record them against purchases rather than as separate income.

Records to keep

Keep supplier invoices, delivery notes, a year-end stock count on traditional accounting, and a record of goods taken for own use. For jobs, link materials to the job so you can check they were charged on.

Worked example: a bakery on traditional accounting

A baker starts the year with £1,200 of stock, buys £18,000 of ingredients and packaging and ends with £1,500 of stock. Cost of goods sold is £1,200 + £18,000 - £1,500 = £17,700. She also takes £300 of cakes at selling price for family events, which she adds to sales.

Four questions before a cost goes here

1. Was it for the business, and only for it? A cost must be incurred wholly and exclusively for the trade. A cost with a personal purpose that cannot be separated is not allowable at all.
2. Is part of it personal? Where a business part can be identified, such as business miles or business calls, claim that part on a reasonable basis and leave the rest out.
3. Is it a running cost or something you keep? Running costs belong in the expense categories. Things you keep are capital: an expense on the cash basis (except cars), capital allowances on traditional accounting.
4. Is there a specific rule? Some costs are disallowed whatever their purpose, such as fines and client entertaining, and some have their own treatment, such as cars, which always go through capital allowances.

Trading allowance or expenses

Instead of deducting expenses, a sole trader can claim the £1,000 trading allowance against trading income. You cannot claim both, so the allowance only helps when your allowable expenses are under £1,000. If your gross trading income is £1,000 or less, the allowance covers it and you may not need to register. Once your costs pass £1,000, deducting actual expenses gives the lower profit.

This category in Making Tax Digital

Under Making Tax Digital for Income Tax, each quarterly update carries your expenses in the same 15 categories as the full self-employment pages, so this category is one line of every update. Sole traders with qualifying income over £50,000 join from 6 April 2026, falling to £30,000 from April 2027 and £20,000 from April 2028. If your turnover is under £90,000 you can send one consolidated expenses figure instead of the categories, but you still keep the records behind it. The same £90,000 limit decides whether you can use the short self-employment pages (SA103S), which ask only for total allowable expenses.

Cash basis or traditional accounting

Which accounting basis you use changes when a cost in this category counts, and sometimes whether it counts as an expense. On the cash basis, now the default, you deduct costs when you pay them and most things you buy to keep are ordinary expenses (cars being the exception). On traditional accounting, you deduct costs when you incur them and claim capital allowances for things you keep.

The disallowable column

The full self-employment pages have a second column of boxes (32 to 45) for disallowable expenses. If your accounts include something that is not allowable, such as the private share of a phone bill or client entertaining, you put the total cost in the expense box and the disallowable part in the matching box, so the tax calculation adds it back. The short pages (SA103S) simply ask for allowable expenses, so you leave the disallowable part out.

How much an allowable cost saves

Each pound of allowable expense saves a sole trader 26p at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate, in England, Wales and Northern Ireland. Scottish Income Tax bands differ, and the sole trader tax calculator works out your own figure.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the invoice or receipt for every cost in this category, with a note of the business purpose wherever it is not obvious, and how you worked out the business share of anything also used privately. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep digital records and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028.

Common mistakes

• Putting equipment in cost of goods.
• Forgetting stock adjustments on traditional accounting.
• Not adding back goods for own use.

Every other category

The other 14 categories on the self-employment pages, in box order:

• Construction industry payments to subcontractors, SA103F box 18
• Wages, salaries and other staff costs, SA103F box 19
• Car, van and travel expenses, SA103F box 20
• Rent, rates, power and insurance costs, SA103F box 21
• Repairs and maintenance of property and equipment, SA103F box 22
• Phone, stationery and other office costs, SA103F box 23
• Advertising costs, SA103F box 24
• Business entertainment, SA103F box 24, disallowed in box 39
• Interest on bank and other loans, SA103F box 25
• Bank, credit card and other financial charges, SA103F box 26
• Irrecoverable debts written off, SA103F box 27
• Accountancy, legal and other professional fees, SA103F box 28
• Depreciation and loss or profit on sale of assets, SA103F box 29, disallowed in box 44
• Other business expenses, SA103F box 30

The A to Z of expenses lists every item and all 23 categories: the 15 self-employment categories and the 8 for UK property.