Business Expenses: What You Can and Cannot Claim

The basic test

To deduct a cost from your business profits, it must be incurred wholly and exclusively for the purposes of the business. “Wholly” means the whole of the cost, and “exclusively” means it is for the business, not for a private purpose too. If a cost has both business and private elements, you can usually claim only the business part, if it can be fairly separated. If it cannot be separated, such as a suit for meetings, you generally cannot claim it.

It must also be a revenue cost, a cost of running the business, and not a capital cost, such as buying equipment, which is dealt with under capital allowances. And it must be incurred in the period, and recorded properly.

What you can usually claim

• Cost of goods sold: stock, materials, subcontractors, packaging, postage.
• Premises: rent, business rates, utilities, cleaning, repairs.
• Staff: wages, employer’s national insurance, pensions, training, recruitment.
• Travel: fares, fuel and mileage for business journeys, parking and tolls, accommodation and subsistence on business trips.
• Office costs: stationery, phone, internet, software and subscriptions.
• Professional fees: accountancy, legal fees for trading matters, insurance.
• Marketing: advertising, website, promotional items.
• Bank and finance charges, and interest on business loans.
• Training that maintains or updates skills you already use.

What you cannot usually claim

• Client entertainment, even if you hope to win business.
• Fines and penalties, including parking fines.
• Private costs, including food, clothing and travel between home and your usual workplace.
• Depreciation, which is replaced by capital allowances.
• Most gifts to clients, unless small and with a business logo, and subject to conditions.
• Costs not incurred for the business, or incurred by someone else.

Grey areas

Check the rules for each, because the right answer depends on your circumstances and structure.

Sole traders and companies are different

A sole trader claims costs against their own profit, and a limited company claims costs that the company incurs. If you pay for a business cost personally, you can claim it back from the company, which records it. Some benefits you take from a company, such as a car, may be taxable on you. Our guide on employee benefits explains.

Simplified methods

HMRC offers flat-rate allowances for some costs, such as use of home, business use of a car or van, and living at a business premises, for small businesses. They are simpler to record, but may give a smaller or larger claim than actual costs, so compare them.

Keep the evidence

For each expense, keep the receipt or invoice, a note of the purpose, and for mixed items, a workings sheet. A claim that cannot be supported is a claim that may be reversed, with a penalty. Our guide on expenses and receipts covers how.

Be honest, and ask

Claiming a private cost as a business one is the most common reason for penalties. If you are unsure, ask. A short question now avoids a long argument later.

Related guides

If this is useful, you may also want:

• Expenses, receipts and mileage
• Capital allowances
• Benefits and expenses