Understanding what qualifies—and why intention matters
Knowing what counts as a legitimate business expense is one of the easiest ways to reduce your tax bill—legally. But the rules aren’t always obvious, and mistakes can cost you either in lost deductions or penalties from HMRC.
This guide outlines what sole traders and small business owners can (and can’t) usually claim. But remember: it’s not just about what you spend money on—it’s about why you spend it. The purpose of the expense is what determines whether it’s allowable.
Disclaimer: Tax rules vary depending on your business structure, industry, and circumstances. The information below is general guidance only and shouldn’t be taken as personal tax advice. When in doubt, speak to a qualified adviser.
Why It Matters
Claiming the right expenses:
- Lowers your taxable profit
- Reduces your Income or Corporation Tax bill
- Keeps your business cash-efficient
- Helps avoid issues with HMRC
The expense must be “wholly and exclusively for the purposes of the business.” That’s HMRC’s benchmark—and it’s all about intention.
What You Can Claim
These categories are typically allowable—if the expense is genuinely for business use:
1. Office Costs
- Stationery, postage, printer ink
- Business phone, broadband, software subscriptions (e.g. Xero, Canva)
2. Premises Costs
- Rent, rates, utilities for a business property
- A portion of home office costs (see below)
3. Travel and Transport
- Business mileage (45p/mile for the first 10,000 miles)
- Train or bus travel for business meetings
- Parking, tolls, congestion charges (for business use)
Claim only if the journey is for business—not commuting.
4. Staff Costs
- Employee wages and bonuses
- Employer’s NI contributions
- Staff training related to their role
5. Marketing and Advertising
- Website design and hosting
- Digital and print advertising
- Branded promotional materials
6. Professional Fees
- Accountancy, legal, or consultancy advice for the business
- Trade body membership fees (if relevant to your work)
7. Insurance
- Business-related policies (e.g. public liability, PI insurance)
8. Bank Charges and Interest
- Fees on a business account
- Interest on a business loan or overdraft
9. Equipment and Tools
- Laptops, phones, tools, machinery used in the business
- Some may be capital items eligible for capital allowances
10. Working From Home
You can claim a portion of household bills if you work from home regularly. Two options:
- Flat rate (simpler)
- Proportional method (more accurate)
What You Can’t Usually Claim
Even if an expense feels “kind of” related, it might not qualify:
1. Personal Expenses
- Everyday clothing, unless it’s protective or branded
- Personal meals or food on ordinary workdays
2. Travel to a Regular Workplace
- Commuting costs from home to your usual place of work are not allowed
3. Client Entertainment
- Meals, drinks, or hospitality for clients are not deductible—even if business is discussed
4. Fines and Penalties
- Parking fines, HMRC penalties, and similar charges are never allowable
5. Gifts
- Only limited promotional gifts (under £50, with a clear business link) are permitted
Don’t Forget: Keep Records
HMRC expects businesses to keep proof of expenses for at least 5 years. This can include:
- Receipts and invoices
- Bank statements
- Mileage logs
Digital systems make this easier—and can save a lot of time at year-end.
Final Thoughts
Getting your expenses right isn’t just about ticking boxes—it’s about making sure your business is efficient, compliant, and not overpaying tax. The most common errors happen not because of the type of expense, but because of why it was incurred.
At My Finance Department, we help small business owners stay on the right side of HMRC while keeping more of what they earn. If you’re not sure what you can claim—or suspect you’re missing out—get in touch. We’ll make sure your books and your strategy work hand in hand.
