Is software and subscriptions
tax deductible?

Yes. Software your business uses for less than two years, and software you pay for regularly to renew the licence, are allowable expenses even if you use them for years (GOV.UK). Other software you buy to keep goes through capital allowances on traditional accounting, and is an expense on the cash basis.

Most business software is now a subscription, which makes it one of the simplest costs to claim: a running cost, deducted as you pay it. The older question of whether a one-off licence is capital only matters on traditional accounting, and only for software you keep for more than two years.

Is software and subscriptions tax deductible?

The HMRC rule

Items used for less than 2 years, such as stationery, postage, printer ink and phone and internet bills, are allowable expenses. The rule comes from Office, property and equipment, Claim capital allowances.

GOV.UK lists computer software your business uses for less than two years, and computer software where the business makes regular payments to renew the licence, even if you use it for more than two years, as allowable office costs. Other software is claimed as capital allowances, unless you use the cash basis (office, property and equipment). On the cash basis, most things you buy to keep are ordinary expenses (capital allowances).

When you can claim it

• Monthly or annual subscriptions: accounting, design, scheduling, CRM and cloud storage.
• Making Tax Digital software and bookkeeping apps.
• Software bought outright and used for less than two years.
• Any software on the cash basis, for the business share.

When you cannot

• Software used only for personal purposes, such as games or personal streaming.
• The private share of software used for both.
• A one-off licence kept for over two years as an expense, on traditional accounting.
• Subscriptions you pay on behalf of family members.

What to claim instead

On traditional accounting, software bought outright and kept for more than two years is claimed through capital allowances, and the Annual Investment Allowance usually gives full relief in the year of purchase anyway. So the practical effect for most sole traders is the same: relief in the year you pay.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? Whether it is a running cost or something you keep depends on what you buy. Items used up within two years, and regular renewals, are running costs; things you keep are relieved through capital allowances on traditional accounting and as expenses on the cash basis.
4. Is there a specific rule? For software and subscriptions, the deciding rule is stationery, phone, postage and printing: items used for less than 2 years, such as stationery, postage, printer ink and phone and internet bills, are allowable expenses.

Worked example: a graphic designer’s stack

A designer pays £660 a year for design software, £180 for cloud storage, £144 for accounting and MTD software and £96 for a scheduling app. All are subscriptions used for the business, so all £1,080 is allowable in the year she pays it, whichever accounting basis she uses.

Subscriptions shared with personal use

Some subscriptions do both jobs: cloud storage with family photos, a productivity suite used for household admin. Claim the business share on a reasonable basis. Where the business use is dominant and the personal use incidental, most sole traders claim a high percentage; where it is genuinely mixed, say half. Write down the basis you used.

Apps bought through app stores

App store receipts are usually emailed to the account holder and show the app and price. Keep them, or export a purchase history at the year end. If a subscription is billed in a foreign currency, record the sterling amount actually charged to your card.

Software and VAT

If you are VAT registered and the supplier charges UK VAT, reclaim it and record the net cost. Many overseas software providers do not charge UK VAT to businesses that give a VAT number, in which case you may need to account for VAT under the reverse charge on your VAT return. For Income Tax, the cost is what the business actually bears.

Where it goes

Software goes in phone, fax, stationery and other office costs, box 23 on the full self-employment pages, and the matching Making Tax Digital category. On traditional accounting, software bought outright and kept for over two years is claimed in the capital allowances section instead.

If you are a landlord

Landlords can claim software used for the letting business, such as property management or accounting apps, as a direct cost of the business, alongside stationery and phone calls (GOV.UK).

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under phone, stationery and other office costs (SA103F box 23 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

For a landlord, it belongs in other allowable property expenses (SA105 box 29 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

Records to keep

Keep the bills, invoices or receipts, and for anything shared with personal use, a note of how you worked out the business share, such as a sample month of itemised calls or an estimate of business hours online. Recheck the percentage if your pattern of work changes.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming personal subscriptions paid from the business account.
• Forgetting app store and in-app subscriptions billed to a personal account.
• Claiming the full cost of software shared with the household.

Related expenses

This item sits in the phone, stationery and other office costs category, alongside broadband and internet, laptops and computers, mobile phone, stationery and postage and streaming subscriptions. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.