Categories describe what a transaction is in tax terms. When you assign a category, you tell Sage how to treat that transaction for reporting and Making Tax Digital for Income Tax.

Sage provides a fixed list of categories that align with HMRC Self Assessment rules. You can't rename or create new core categories, which keeps your records consistent and easier to review later.

You decide which category fits each transaction. If you feel unsure, speak to your accountant before you submit your quarterly update or Final Declaration.

Understand what categories do

Categories help Sage to:

• Group income and expenses in a way HMRC expects
• Build accurate quarterly updates and year-end totals
• Keep business and personal activity separate

A category doesn't decide what you can claim. It only describes the nature of the transaction.

Know when to use business categories

Use a business category when the transaction relates directly to running or earning income from your business.

Examples include:

• Payment from a customer for your work
• Stock or materials bought for jobs
• Software used only for your business

If the cost supports your business activity, a business category usually fits.

Use non-business for personal or private items

Use non-business when a transaction is personal or doesn’t relate to your business.

Common examples include:

• Personal shopping paid from a business account
• Money moved between your own accounts
• Taking money out for personal use

Non-business items stay visible in Sage but stay out of your tax calculations.

Split transactions when one payment covers multiple things

Some payments include both business and personal elements. You can split these transactions into separate lines.

Typical scenarios include:

• A supermarket receipt with office supplies and personal shopping
• Fuel - where only part relates to business travel
• A bill that covers different cost types

Splitting reflects what actually happened and keeps your records clearer if questions arise later.

Handle mixed-use costs sensibly

Some costs support both business and personal use, such as home internet or mobile phone bills.

When this happens:

• Record only the business portion as a business category
• Mark the rest as non-business
• Add a note explaining how you worked out the split

This approach keeps claims reasonable and easier to explain.

Remember what categories don’t cover

Some items never form part of business income or expenses and belong in your personal tax position instead.

Examples include:

• Pension contributions
• Gift Aid donations
• Student loan repayments

You don't report these through business categories in Sage Accounting Individual.

Get help if you feel unsure

Categories support good record-keeping, not tax advice. If a transaction feels unclear or unusual, pause and get advice before you submit.

Your accountant or HMRC can confirm how to treat costs for your situation.