Business Expenses: What You Can Claim and What Records You Need

Claiming business expenses correctly reduces your tax bill legitimately. Claiming incorrectly creates a liability that surfaces later with interest attached. The governing principle is simple and the application is where it gets awkward, so HM Revenue & Customs guidance is the reference rather than what a competitor says they claim.

The Basic Test

A cost is generally allowable if incurred wholly and exclusively for the purposes of the business. Where something serves both business and private purposes, only the business proportion qualifies, and you need a defensible basis for how you split it.

Mixed-Use Costs Need a Method

Vehicles, phones, broadband and home working are the common cases. Either apportion actual costs on a reasonable basis, or use the simplified flat-rate methods available for some categories. Whichever you choose, be consistent and record the basis.

Working From Home

You can claim a proportion of household costs where part of the home is used for business, or use a flat rate based on hours worked. The flat rate is simpler and usually smaller; apportioning actual costs requires a defensible method and better records.

Travel Is Narrower Than People Assume

Travel between home and a permanent workplace is generally not allowable. Travel to a temporary site, to a customer, or between workplaces usually is. Keeping a contemporaneous record of journeys is what makes a mileage claim defensible.

Entertaining Is Usually Not Deductible

Entertaining clients is a legitimate business cost that is nonetheless disallowed for tax. Staff entertaining is treated differently and may be allowable within limits. This surprises people every year.

Equipment Is Treated Separately

Larger purchases are generally handled through capital allowances rather than deducted as ordinary expenses, and the timing of a purchase around your year end can affect when relief arises. Worth a conversation with your accountant before a significant buy.

Keep the Evidence, Not Just the Amount

Receipts, invoices and bank records must be retained for a minimum period. Photograph receipts as you get them — thermal paper fades to blank within months, and a claim you cannot evidence is a claim you may lose.

Note the Business Reason at the Time

For anything unusual, a one-line note explaining why it was a business cost takes seconds and is far easier than reconstructing the justification two years later when asked.

Do Not Run Personal Costs Through the Business

Beyond being incorrect, it makes your accounts unreliable and complicates any conversation about lending, investment or exit planning, since buyers and lenders normalise owner expenses when assessing profit. It also creates a director’s loan issue in a company.

Your Structure Changes the Treatment

Some rules differ between sole traders and companies, including how vehicles and home working are handled and how money is extracted. If you are weighing sole trader or limited company, the expense treatment is one of the practical differences worth understanding.

Common Categories Worth Reviewing

Subscriptions and software, professional fees, insurance, training relevant to your trade, trade subscriptions, bank charges, and the business proportion of phone and broadband. Many small businesses under-claim simply because these are never listed and considered.

Pre-Trading Costs May Qualify

Costs incurred before you started trading can sometimes be treated as if incurred on the first day, subject to conditions and time limits. Businesses frequently miss this because the spending predates any thought of bookkeeping.

Capital and Revenue Are Different

Repairing something is generally a revenue cost and deductible; improving or replacing it may be capital and treated differently. The distinction is not always obvious and it is a common area of error, particularly with property and vehicles.

Record the Split as You Go

Apportioning mixed-use costs at the year end from memory produces figures you cannot defend. Noting the basis at the time — a mileage log, a record of hours worked from home — takes seconds and makes the claim solid.

Use Software Rather Than a Shoebox

Photographing receipts into an app that attaches them to the transaction removes almost all the friction from record-keeping, and most accounting packages include it. The cost is trivial against the deductions people lose through missing evidence.

Ask Before Assuming Something Is Not Allowable

Owners under-claim as often as they over-claim, usually through caution about something they were unsure of. A quick question to your accountant costs nothing and frequently recovers more than the fee.

Note the Date as Well as the Amount

Which accounting period a cost falls into affects when relief arises. Recording the actual date of the transaction, rather than when you got round to entering it, keeps the year end accurate.

Claim for Use of Your Own Vehicle Properly

Either claim a flat rate per mile or a proportion of actual running costs, but not both, and once you have chosen a method for a particular vehicle you generally have to stay with it. Keeping a contemporaneous mileage record is what makes either approach defensible.

Watch the Rules That Differ by Trade

Clothing, tools, travel and training are all treated differently depending on the work. Protective clothing and a uniform are generally allowable; ordinary clothing worn for work is generally not, however necessary it feels. Check your own trade rather than generalising.

Review What You Claimed Last Year

Looking at last year’s figures before this year’s return is the simplest way to spot something you have stopped claiming, or a cost that has grown enough to be worth apportioning properly. It takes minutes and regularly finds something.

Keep Business and Personal Cards Separate

Using a personal card for business costs, or the reverse, is the most common source of incomplete records. A dedicated card used only for business removes the reconciliation problem entirely and makes the year end considerably faster.

Reimbursing Yourself Properly

Where you pay a business cost personally, record it as an expense claim rather than informally taking money back. In a company this keeps the director’s loan account clean; as a sole trader it keeps the records comprehensible.

When in Doubt, Ask

Where the Expenses End Up

For anyone self-employed, claimed expenses are declared through the Self Assessment return, and the deadlines and payment on account catch out most people in their first year.

How Long to Keep It

Records have minimum retention periods that differ by type and by business structure. Business record keeping sets out what to keep and for how long.

The cost of asking an accountant whether something is allowable is trivial against a retrospective adjustment. Guessing based on what someone else claims is how businesses acquire liabilities they did not know they had.