Business expenses: what you can (and can’t) claim

If you run a small business or limited company, it’s important to have a clear understanding of the business expenses you can deduct from your income when calculating your taxable profit. This guide runs through exactly what you can and can’t claim. 

Key takeaways

• Limited companies and small businesses can claim work-related business expenses as tax-deductible, reducing the amount of tax they pay

• To qualify, you must have incurred the expenses exclusively for the running of your business

• Business expenses can include travel costs, salaries, office expenses, training courses and business insurance

• It’s crucial to keep accurate financial records of your business expenses before submitting your tax return

Sole trader? Read our business expenses guide for self-employed people to discover what you can claim.

What are business expenses? 

Business expenses – also known as allowable expenses – are the everyday costs involved in keeping your business running. These can include things such as employee wages, insurance, utility bills, office supplies and fuel. Essentially, if it’s necessary for your business to function, it probably counts.

As a small business owner or limited company, you can deduct these work-related expenses from your income. This lowers your taxable profit and ultimately reduces the amount of tax you have to pay.

What can small businesses claim as business expenses?

You can’t subtract all expenses from your income when calculating the taxable profit. To be included, the costs must be solely and exclusively incurred for the purpose of running your business. 

Some of the business expenses you can claim as a limited company or small business include:

1. Travel expenses

You can claim travel expenses that you or your employees incur while travelling for business purposes – such as visiting clients or attending meetings.

This can cover costs such as fuel, parking as well as train, taxi or bus fares. It even includesvehicle insurance if you’ve hired a car for the trip. If the journey involves an overnight stay, you can also claim for accommodation, meals and drinks.

However, you can’t claim for regular commuting between your home and your usual workplace – that’s considered a personal expense.

2. Employee costs

You can claim for staff salaries, bonuses, pensions, employer’s National Insurance contributions and benefits. This can apply to full-time employees, independent contractors, consultants and freelancers. 

3. Office expenses

Allowable expenses include any purchases you make for your office to run efficiently. This includes computers, furniture, printers, printer ink and stationery, as well as work phone contracts and broadband payments. 

If your mobile phone bill is in the company’s name and you use it solely for business purposes, you can claim the whole bill as a business expense. If it’s in your own name, you can only claim for the portion you use for work purposes. 

You can also claim expenses for renting your business premises, as well as your gas, electricity and water bills.  

4. Professional fees

If you use an accountant or solicitor for your business, you can usually claim their fees as an allowable expense, provided you use their services solely for the purpose of running of your company. 

5. Uniforms and other clothing

If your staff wear a uniform or need personal protective equipment (PPE), you can claim these costs as a business expense. However, you can’t claim for everyday clothing you wear to work. 

6. Marketing and advertising

Any expenses relating to marketing and advertising also count as business expenses, including website domain registration, hosting fees, online advertising, free samples and business cards. 

7. Training costs

If your staff attend training courses, you can claim these expenses, provided the courses relate to your business.

8. Business insurance

You can claim the cost of any business insurance policies you have taken out, such as public liability insurance, employers’ liability insurance and professional indemnity insurance. 

9. Professional subscription expenses

You can only claim for subscription expenses if they are directly relevant to your business – check the HMRC list of professional bodies to see if you can claim. 

You can also claim for trade body or professional organisation memberships, but again, only if they relate to your business. 

10. Financial services

If you have a business loan, the interest charged is usually tax-deductible, as long as the loan is used for business purposes. You can also claim any fees associated with the loan, including arrangement fees, as a business expense.

What can’t you claim as a business expense?

While there are many expenses you can claim, it’s just as important to know which ones you can’t. These include:

• Personal expenses 

• Expenses related to entertaining clients (entertaining employees is fine)

• Most legal fees

• Penalties and fines

• Donations not made via Gift Aid

• Loan or overdraft repayments

Can I claim buying assets as a business expense?

HMRC treats the purchase of assets for your business, such as plant and machinery, as a capital expense rather than a business expense. But although this means you can’t claim these assets as a business expense, you might be able to claim them as a capital allowance. 

The annual investment allowance, for instance, lets you deduct the costs of plant and machinery from your profit. 

How do I claim a business expense?

To make claiming business expenses easier, it’s essential to keep accurate records and retain all receipts and invoices, because these serve as evidence for your claims.

Make sure your receipts and invoices clearly show the date and amount of each transaction, and check all payments came out of your business bank account. 

At the end of the tax year, you need to add up the total cost of your allowable expenses and enter this into the relevant section of your self-assessment tax return. You don’t need to provide evidence unless HMRC asks you to.

If you’re unsure about which expenses are tax-deductible, or you need help keeping track of your business expenses, it’s a good idea to work with an accountant. Alternatively, accountancy software can be useful for managing and staying on top of your business expenses.