Allowable Business Expenses: What Can UK Businesses Claim?
Understanding which business expenses can be claimed is an important part of managing your tax position. Legitimate business costs can reduce taxable profits, but the rules vary depending on the expense and how your business operates.
At Thomas Nock Martin, we help businesses understand their tax obligations and ensure eligible expenses are treated correctly.
This guide covers some of the most common allowable business expenses UK businesses should consider.
What Are Allowable Business Expenses?
Allowable expenses are business costs that can be deducted when calculating taxable profits, provided the relevant tax rules are met.
For sole traders, HMRC lists categories including office costs, travel, staff costs, business premises, financial costs and professional subscriptions. Limited companies can also deduct qualifying revenue expenses when calculating profits for Corporation Tax.
However, simply paying for something through a business account does not automatically make it tax deductible.
The purpose of the expense matters. For many business expenses, the underlying principle is that expenditure must be incurred wholly and exclusively for the purposes of the business.
Common Allowable Business Expenses
Businesses incur many different costs, and what can be claimed will depend on individual circumstances.
Common categories can include:
- Office and stationery costs.
- Business premises costs.
- Staff costs.
- Business insurance.
- Professional fees.
- Advertising and marketing.
- Certain business travel costs.
- Relevant professional subscriptions.
- Bank and financial charges.
For example, self-employed businesses can generally claim qualifying accountancy and other professional fees incurred for business purposes.
At Thomas Nock Martin, we recommend reviewing expenses regularly rather than waiting until a tax return or year-end accounts need to be prepared.
Can You Claim Business Travel Costs?
Certain travel costs can qualify as allowable business expenses.
For sole traders, HMRC guidance includes qualifying vehicle costs, parking, public transport fares, hotel accommodation and meals on overnight business trips. However, ordinary travel between home and a regular workplace and personal journeys are not generally allowable.
Keeping accurate records is therefore essential, particularly where a vehicle or journey has both business and personal use.
Where an identifiable proportion of an expense relates wholly and exclusively to business, that business element may sometimes be deductible.
Can You Claim for Working From Home?
If part of your home is used for business, you may be able to claim an appropriate proportion of certain household costs.
For self-employed people, these can include relevant proportions of heating, electricity, Council Tax, mortgage interest or rent, internet and telephone costs. The calculation should use a reasonable method based on factors such as the space and time used for business.
Eligible sole traders and qualifying partnerships may alternatively use HMRC’s simplified expenses for working from home. Limited companies cannot use these simplified expense rules.
Because the treatment can depend on your business structure and circumstances, professional advice can help establish the appropriate approach.
What About Equipment and Machinery?
The tax treatment of equipment is not always the same as an everyday business expense.
For limited companies, capital expenditure cannot generally be deducted as an ordinary revenue expense when calculating taxable profit. However, qualifying expenditure may instead receive relief through capital allowances.
Different rules can also apply to self-employed businesses depending on whether they use traditional accounting or cash basis accounting.
This distinction is important when purchasing computers, machinery, vehicles or other assets expected to remain in the business.
Business Costs You Cannot Automatically Claim
Not every business-related payment qualifies for tax relief.
Examples can include:
- Personal expenditure.
- The private element of mixed-use expenses.
- Certain client entertainment.
- Fines for breaking the law.
- Some capital expenditure.
For limited companies, HMRC specifically identifies client entertaining as an example of a cost that is disallowed when calculating taxable profits.
Correctly separating allowable and disallowable costs can prevent errors when preparing accounts and tax returns.
Keep Accurate Expense Records
Good record keeping is essential when claiming business expenses.
Businesses should retain appropriate evidence such as receipts, invoices and financial records. Self-employed taxpayers do not normally submit proof of every expense with their tax return, but HMRC requires records to be retained in case they are requested.
Digital bookkeeping can make this easier by allowing expenses and supporting documents to be recorded throughout the year.
Accurate records also give your accountant a clearer picture of the business and reduce the risk of legitimate expenses being overlooked.
How Thomas Nock Martin Can Help
Understanding allowable expenses is about more than reducing a tax bill. Expenses need to be correctly classified, supported by appropriate records and treated according to the rules applying to your business.
At Thomas Nock Martin, we help businesses understand their tax position and identify legitimate expenses that may be considered when calculating taxable profits.
Regular reviews can also identify missing records or incorrectly categorised costs before accounts and tax returns are prepared.
Speak to our tax team to discuss your business expenses and tax obligations.
FAQs
What expenses can a business claim?
Depending on the business and circumstances, allowable costs can include office expenses, staff costs, business premises, professional fees, insurance, qualifying travel and other expenses incurred for business purposes.
Can I claim travel costs?
Qualifying business travel costs can generally be claimed, but personal travel and ordinary commuting are normally excluded. The rules depend on the journey and your circumstances.
Can I claim home working costs?
Self-employed people may be able to claim an appropriate proportion of certain household costs when working from home. Simplified expense rates are also available to eligible sole traders and qualifying partnerships.
What records do I need for business expenses?
Businesses should keep accurate records and appropriate evidence of expenditure, including receipts, invoices and relevant bank records. These may be required to support figures reported to HMRC.
Can an accountant review my business expenses?
Yes. An accountant can review business expenditure, identify potentially allowable costs and help ensure expenses are treated correctly. Thomas Nock Martin can provide tax advice based on your business structure and circumstances.
