As an accountant, there is one question I get asked more than any other ‘can I run this through the business?’ What business expenses can you actually claim?
Everyone wants to minimise their tax bill, and claiming legitimate business expenses is the single best way to do it. Every pound of valid business expenditure reduces your taxable profit, saving a sole trader up to 40% (or more) in Income Tax and National Insurance, or saving a limited company up to 25% in Corporation Tax.
But HMRC rules are precise. Push the boundaries too far, and you risk triggering an inquiry. Stick too strictly to the rules, and you leave money on the table.
Let’s break down exactly what you can claim, what you can’t, and the “golden rule” that underpins everything.
The Golden Rule – ‘Wholly and Exclusively’
Before we look at specific categories, you must memorize HMRC’s foundational concept – Wholly and Exclusively.
For an expense to be tax-deductible, it must have been incurred wholly and exclusively for the purposes of your trade.
- Wholly means the only reason you spent the money was for your business.
- Exclusively means there was no dual purpose or personal motive behind the spend.
If an expense has a mixed purpose (part personal, part business), you generally cannot claim it unless you can clearly isolate and document the specific business portion.
What you can claim – The main categories
Here are the most common allowable expenses that most business owners can claim to legally lower their tax liability.
1. Office Costs and Software
The everyday essentials required to keep your business operational are fully claimable.
- Stationery & Postage: Envelopes, paper, pens, and shipping costs.
- Software Subscriptions: This is huge. Monthly or annual fees for tools like Xero or QuickBooks, Microsoft 365, Adobe Creative Cloud, Slack, and Canva are all 100% allowable.
- Phone & Broadband: If the contract is in your limited company’s name, you can claim the full amount. If you are a sole trader, you must apportion the bill (e.g., if you use your phone 70% for business, you claim 70% of the cost).
2. Working from Home
If you use your home as an office, you can claim a portion of your household running costs (heating, electricity, council tax, rent). You have two ways to do this:
- The Simplified Method (Sole Traders/Directors): You can claim a flat rate. For limited company directors, this is £6 per week (£312 a year) without needing to keep a single receipt.
- The Actual Cost Method: You calculate the exact proportion based on the number of rooms in your house and the time spent working in them.
3. Business Travel and Vehicles
You cannot claim for your regular daily commute to a permanent place of work. However, travel to temporary locations—like visiting a client, attending a conference, or picking up stock—is fully claimable.
- Public Transport: Train tickets, bus fares, flights, and taxis.
- Personal Vehicle Mileage: If you use your personal car for business trips, do not claim for fuel and repairs. Instead, claim the HMRC Approved Mileage Allowance Payment (AMAP) rate.
4. Marketing, Advertising, and Web Costs
Anything you spend to attract new clients or keep existing ones is allowable.
- Google Ads, Facebook Ads, and directory listings.
- Website design, domain renewals, and monthly hosting fees.
- Printing flyers, business cards, and branded merchandise.
5. Professional Fees and Training
- Accountancy and Legal Fees: Yes, ironically, the fee you pay me to do your taxes is fully tax-deductible!
- Insurance: Professional Indemnity, Public Liability, and Employers’ Liability insurance.
- Training and CPD: You can claim for courses that maintain or update your existing business skills. (Note: You cannot claim for training that sets you up in a completely new career or line of business).
The grey areas & what HMRC will reject
This is where people usually trip up. Let’s clear up a few common misconceptions.
✗ Client Entertaining
This is the most common mistake. Taking a client or a prospective lead out for lunch or buying them a drink is not tax-deductible. While it is a legitimate business activity, HMRC specifically blocks it from reducing your tax bill. (Staff entertaining, like a Christmas party under £150 per head, is allowable).
✗ Everyday Clothing
You cannot claim for a nice suit, a smart dress, or even basic everyday clothes that you bought specifically to wear to a client meeting. Why? Because of the “wholly and exclusively” rule—the clothes have a dual purpose of keeping you warm and covered. You can only claim for genuine protective gear (PPE) or a uniform that has your business logo permanently attached to it.
✗ Fines and Penalties
Got a parking ticket while visiting a client? Speeding ticket on the way to a presentation? HMRC views breaking the law as a personal failing, not a business necessity. Fines and penalties are never tax-deductible.
The ultimate accountant’s tip – keep your receipts
An expense only exists if you can prove it. HMRC requires you to keep your business records and receipts for at least 5 years after the 31 January submission deadline.
Don’t let your glove box fill up with fading thermal paper. Use your accounting software’s mobile app to snap a photo of your receipt the second you get it, upload it to the cloud and throw the paper away. If HMRC ever comes knocking, your defence is already automated.
Are you unsure whether a specific expense you’ve incurred is allowable? Get in touch with us directly, it’s always cheaper to ask your accountant beforehand than to correct a mistake during a tax return!