Guide to Claiming Business Expenses

Every legitimate business expense reduces your taxable profit, which means you pay less tax. Yet many UK business owners leave money on the table by not claiming expenses they are entitled to, or lose deductions because they do not have the right documentation.

This guide covers what you can claim, how to claim it and the mistakes to avoid.

The basic rule

HMRC’s test for a deductible expense is that it must be incurred wholly and exclusively for the purposes of the trade or business. If something has a dual purpose – partly personal, partly business – you can usually claim the business proportion, provided you can demonstrate how you arrived at the split.

For limited companies, this rule comes from the Corporation Tax Act. For sole traders, it is in the Income Tax (Trading and Other Income) Act 2005.

Office and premises costs

Working from home

If you work from home, you can claim home office costs using one of two methods:

HMRC flat rate:

Actual cost method: Calculate the proportion of your home used for business and claim that percentage of rent/mortgage interest, council tax, utilities, broadband and insurance. This usually gives a larger deduction but requires more record-keeping.

For limited companies, you can charge the company a rent for using your home office. This is tax-free up to the amount that covers your actual additional costs and is an allowable expense for the company.

Travel and transport

Business travel (not commuting)

• Train, bus and tube fares for business journeys
• Flights for business trips
• Taxis when other transport is impractical
• Parking at business destinations
• Congestion charge for business journeys
• Hotels for overnight business trips
• Subsistence – meals while travelling on business (reasonable amounts)

Commuting (travel from home to your regular place of work) is never deductible.

Vehicle costs

You can claim vehicle expenses using either:

Mileage allowance:

Actual costs: Fuel, insurance, servicing, road tax, finance costs – but only the business proportion based on your mileage log.

You cannot switch between these methods for the same vehicle. Keep a mileage log recording each journey’s date, destination, purpose and distance.

Staff costs

Paying family members

You can employ your spouse, partner or family members and deduct their salary as a business expense. However, the salary must be commercially reasonable for the work they do. Paying your spouse £40,000 for occasional admin work will not survive an HMRC challenge.

Professional and financial services

• Accountancy fees – fully deductible
• Legal fees – deductible if related to trading activities (not capital transactions like property purchases)
• Business bank charges – fully deductible
• Loan interest – on business borrowings (not the capital repayment)
• Credit card fees – business proportion
• Debt collection costs – fees paid to recover unpaid invoices
• Insurance premiums – professional indemnity, public liability, employers’ liability

Marketing and sales

• Advertising – online, print, radio, outdoor
• Website costs – hosting, domain registration, design and development (if revenue expenditure)
• Social media advertising – Facebook, LinkedIn, Google Ads
• Business cards and printed materials
• Trade shows and exhibitions – stand hire, materials
• PR and marketing consultancy fees
• Sponsorship – if genuinely for business promotion

Technology and equipment

The Annual Investment Allowance of £1,000,000 means virtually any equipment purchase by a small business is deductible in full in the year of purchase.

What you cannot claim

Some expenses are specifically disallowed:

• Client entertaining – meals, drinks, hospitality for clients and prospective clients
• Non-business clothing – suits, general workwear (branded uniforms and PPE are fine)
• Fines and penalties – speeding fines, parking fines, HMRC penalties
• Political donations
• Personal expenses of any kind
• Capital repayments on loans (interest is deductible, principal is not)

Client entertaining vs staff entertaining

This distinction matters. Taking your team out for a meal is deductible (within reason). Taking a client out for a meal is not. The tax treatment is completely different despite the activity being almost identical.

Staff entertaining is exempt from tax for the employees if it costs less than £150 per head per year and is an annual event (like a Christmas party) open to all staff.

Documentation requirements

For every expense you claim, keep:

• A receipt or invoice showing the date, supplier, amount and what was purchased
• For VAT recovery, a valid VAT invoice with the supplier’s VAT number
• For mileage claims, a mileage log
• For mixed-use expenses, a note explaining the business proportion and how you calculated it

HMRC can go back 6 years (or 20 if they suspect deliberate errors). Keep your records for at least this long. See our guide on record retention.

How to claim

Sole traders

Deduct allowable expenses from your turnover on your Self Assessment tax return (SA103 supplementary pages). The net figure is your taxable profit.

Limited companies

Expenses are deducted from revenue in your company’s profit and loss account, reducing your Corporation Tax liability.

Employee expense claims

If you are a company director or employee and you incur expenses personally, the company reimburses you. The reimbursement is tax-free for you and deductible for the company, provided the expenses meet HMRC’s rules.

Maximising your claims

• Claim everything you are entitled to – review your bank statements each month for expenses you may have missed
• Keep every receipt – use a receipt management app to capture them digitally
• Categorise correctly – proper expense tracking ensures nothing falls through the gaps
• Review at year end – go through your accounts with your accountant to identify any unclaimed expenses
• Use accounting software with bank feeds – it flags transactions that need categorising so nothing is missed

For deeper detail on specific categories, see our guides on allowable business expenses and claiming home office costs.