Business expenses: what you can claim (and what you can’t)

In its simplest terms, managing your business’s finances often comes down to two things: what you’re earning and what you’re spending. Income and expenses. And part of the latter involves knowing which line items qualify as business expenses — and can therefore be deducted against your tax — and which don’t.

Here, we answer all your business expense-related questions. What is a business expense exactly? What can you claim and not claim? How do business expenses differ if you’re self-employed or run your own company? And what does the claiming process involve?

Let’s get started.

Firstly, what qualifies as a business expense?

We’re going to go into the nitty gritty of what you can and can’t claim as a business expense shortly, but it’s worth knowing what qualifies as a business expense upfront. 

The most important words you’re likely to encounter in this regard  are “wholly and exclusively”. To qualify as a business expense, any expense must be used wholly and exclusively for business purposes. This means the expense should be necessary for you to run your business and shouldn’t be for personal use. 

The rules shift slightly if the expense is also something you use for personal reasons, such as your mobile phone, your car, or your home office. In this instance, you’ll need to work out what portion of the expense you use for business purposes. So, if you use your mobile for both business and personal calls, you can claim the percentage you use for business as a tax-deductible expense.

HMRC expects you to be realistic in your calculations and may ask you to defend your claims. Be careful in your estimates and always keep a record of your usage patterns to show to HMRC if necessary.

What expenses are tax deductible?

So, what can you deduct as a business expense? The list that follows should cover most of your line items:

Office and workspace costs

• Office rent and utilities: If you rent dedicated business premises, you can claim the full cost including rent, business rates, electricity, gas, water, and phone bills. 
• Office equipment and furniture: Desks, chairs, computers, printers, and software can be claimed. Some items may need to be claimed as capital allowances over several years rather than as an immediate expense.
• Home office expenses: If you work from home, you can claim a portion of your household bills, including heating, lighting, council tax, mortgage interest, and rent.

Council tax warrants a quick qualification. Generally, council tax isn’t directly tax deductible as it’s considered a personal expense. However, if you work from home and use part of your property exclusively for business, you can claim the business proportion of your council tax as a home office expense. You can also fully deduct council tax paid on separate business premises, and landlords can deduct council tax they’re responsible for on rental properties from their rental income.

Travel and transport

• Fuel and vehicle mileage: If you’re self-employed and use your car for work, you can either calculate the exact business percentage of all your vehicle costs, or you can use HMRC’s simplified mileage rates and only claim for business journeys. If you use the actual cost method, you can claim the business proportion of fuel, insurance, MOT, servicing, and repairs. If you use the mileage allowance, you can claim 45p per mile for the first 10,000 business miles, then 25p per mile after that. Make sure you keep detailed mileage logs to back up your claims. 

• Public transport:

When it comes to public transport, train, bus, and tube fares for business journeys are fully deductible. 

• Parking and tolls:

Business-related parking fees, congestion charges, and toll road fees are included, too.

The following line items are a little more straightforward — all of them are tax deductible:

Professional services and training

• Accountancy and legal fees: Professional fees for business advice, bookkeeping, tax preparation, and legal services.

• Professional development:

Training courses, seminars, and qualifications that enhance your business skills.

• Professional memberships:

Subscriptions to trade bodies, professional associations, and industry publications.

Marketing and advertising

• Website costs: Domain registration, hosting, and website development.
• Advertising: Online ads, print advertising, business cards, brochures, and promotional materials.
• Networking events: Tickets to business networking events and trade shows.

Communication and technology

• Phone and internet bills: Business proportion of mobile and landline bills, or dedicated business lines in full.
• Software subscriptions: Business software, cloud services, and apps necessary for your business to operate.
• Computer equipment: Laptops, tablets, and accessories used for business.

Insurance and financial costs

• Business insurance: Professional indemnity, public liability, business contents insurance, and other insurance your business may require.
• Bank charges: Fees on business bank accounts and business credit cards.
• Interest on business loans: Interest payments on loans used for business purposes.

Stock and materials

• Raw materials: Items you use to create your products or deliver your services.
• Stock for resale: Goods you buy to sell on to customers.
• Packaging and postage: Envelopes, boxes, bubble wrap, and shipping costs.

Staff and subcontractor costs

• Employee wages: Salaries, bonuses, and benefits for staff.
• Employer's National Insurance: Your National Insurance contributions for your employees.
• Pension contributions: Employer contributions to staff pension schemes.
• Subcontractor fees: Payments to freelancers and contractors for business services.

What you can’t claim 

Of course, there are limitations and exclusions you need to be aware of, too. The most important of which is that anything that you use for personal reasons is out. This includes your clothing, meals unrelated to your work, and your mobile phone (unless you’re deducting a portion of it for business purposes).

Parking tickets, speeding fines, and late payment penalties to HMRC are also excluded, as are personal pension contributions. Your personal pension contributions go through a different tax relief system.

HMRC also has a useful dedicated “Claiming work expenses” website, which provides additional support on the work expenses you can claim and not claim. If you have further questions, it might be worth asking an accountant for advice.

What is an example of a business expense?

Let’s take a look at a few simple examples of business expenses, so that we can frame the list above in practical terms:

• Travel costs: A consultant drives to meet clients and claims 45p per mile, or a sales rep buys train tickets for business meetings.
• Professional services: A small business owner pays their accountant £500 to prepare their annual accounts and tax return.
• Equipment: A photographer purchases a new camera lens for their business shoots.
• Marketing: A bakery owner pays £200 for social media ads to promote their wedding cakes.
• Home office: A freelance writer claims £6 per week for working from home.

Do business expenses differ depending on the type of business you own?

Let’s take a look at whether your business expenses change depending on the type of business you run. While what you can claim doesn’t change dramatically if you operate as a sole trader, a limited company, or a partnership, there are slight differences in how you claim.

• Sole traders: If you’re self-employed as a sole trader, you’re essentially the business. This means claiming expenses is relatively straightforward. You simply deduct allowable business costs from your business income on your Self Assessment tax return. While being a sole trader typically involves less red tape, you’ll likely need to be conscious of expenses that cross the business/personal divide. 

Find out more here: What expenses can I claim as self-employed?

• Limited companies: When you operate through a limited company, you’re technically an employee of your own business (assuming you take a salary). This means your company can pay for business expenses and reclaim VAT (if you’re VAT registered), but personal expenses paid by the company could land you with a benefit-in-kind tax charge.

• Partnerships: In a partnership, expenses are typically claimed at the partnership level and then allocated between partners according to their profit-sharing agreement. As a result, you need to be particularly careful about tracking expenses and ensuring all partners are on the same page about what constitutes a legitimate business expense.

How do you claim for business expenses?

The claims process differs depending on your business structure. Here’s what to expect:

• For sole traders: Add up your allowable expenses and deduct them from your business income on your Self Assessment tax return. You’ll need to categorise them into different expense types (such as “office, property and equipment”, and “car, van and travel expenses”) using the relevant sections of your tax return.
• For limited companies: The company pays for expenses directly and includes them in its annual accounts and Corporation Tax return. If you pay for business expenses personally, submit an expense claim to your company for reimbursement.

• For partnerships: Expenses are typically handled at partnership level and included in the partnership tax return, then allocated between partners.

Remember that no matter how you structure your business, the following tips apply to everyone:

• Make sure you keep all receipts and invoices (digital copies are acceptable)
• Record your expenses regularly using reliable accounting software or spreadsheets
• Separate your business and personal costs clearly
• Note what each expense was for and when it occurred
• Submit your claims annually via your Self Assessment, company accounts, or partnership tax return

Again, if you’re confused at all, seek out the help of an accountant. They’ll ensure that you’re meeting HMRC’s requirements, filling everything out correctly, and claiming as much tax back as possible. 

Quickfire summary

Whether you’re a sole trader, a limited company director, or a partner in a business, the fundamental rule remains the same: your business expenses must be wholly and exclusively for business purposes to qualify for tax relief.

When in doubt, ask yourself whether the expense is genuinely necessary for your business to operate and whether you can justify it to HMRC if you need to. If the answer is yes and you have the paperwork to prove it, you should be on solid ground.

The key to success is staying organised from day one. Keep every receipt, document your business purpose for each expense, and regularly update your records. Remember that legitimate business expenses directly reduce your tax bill, so claiming them properly puts money back in your pocket.

Also read:

• Making Tax Digital: Everything you need to know
• How to Register as Self-Employed in the UK
• What is a P60 in the UK?