One of the most common questions we hear is “What can I claim as a business expense for tax purposes?”
It’s a great question—and one every business owner should understand. While there’s no definitive list of deductible expenses (because every business is different), there are clear principles that guide what can and can’t be claimed.
Here’s a practical overview to help you stay on the right side of HMRC:
General rules for allowable expenses i.e. expenses that reduce your taxable profits:
- Keep good records – You must retain records of your business spending until the fifth anniversary of the 31 January following the tax year (or six years after the accounting period for companies).
- Receipts are helpful, but not essential – You can claim an expense without a receipt if you genuinely incurred the cost. However, having a receipt makes it easier to prove the claim if questioned. However for VAT purposes, a VAT invoice in the businesses name must be kept.
- Business only
Expenses must be wholly for business. If an item is partly private (e.g. food, clothing, reading glasses), it’s not deductible for tax purposes.
Exception: If the expense is for goods that are used over time (e.g. fuel, phone calls), you can claim the proportion used for business. - Capital items
Physical assets like cars, vans, computers and equipment may qualify for capital allowances. However the cost of buildings, renovations (e.g. partition walls) are not deductible against business profits. - Paying family members
You can claim wages paid to relatives only if they actually work for the business and are paid a commercial rate. - Entertainment
Business entertainment (e.g. taking clients out) isn’t deductible. Staff entertainment may be claimed, but could create a personal tax liability unless it qualifies under HMRC’s annual party exemption. - Using your home as an office
You can claim a reasonable share of household costs (e.g. rent, mortgage interest, council tax, utilities, insurance). The claim should reflect the space used and hours worked.
Note: Don’t dedicate a room entirely to business use, as this can affect capital gains tax.
Company directors can charge rent to their company, then declare both rent income and associated costs on their personal tax return. - Travel and subsistence
Travel from home to your regular workplace isn’t deductible. But travel to clients, suppliers or meetings is. You can also claim related subsistence (food and drink) and accommodation. - Only actual costs
You can only claim what you’ve actually spent. For example, if you invoice a client £100 for travel but only spend £50, you can only deduct £50 from your income when calculating business profits. - Pension contributions
Pension payments reduce tax. For sole traders, basic rate relief is given at source, and higher/additional rate relief is claimed via your tax return.
Who do these rules apply to?
These guidelines apply to all businesses – whether you’re self-employed or operating through a company. Different rules apply to employees.
If you’d like to explore how these rules apply to your business, we’d be happy to help. Book a free online meeting and let’s talk it through.
