What Counts as a Business Expense (and What Doesn’t)?

One of the questions I get asked all the time is: “What actually counts as a business expense?” Closely followed by: “Will HMRC ask me to prove it?”

Running a business means keeping an eye on your numbers, and understanding what you can (and can’t) claim as an expense is a big part of keeping your tax bill as low as possible — legally, of course.

So what can you claim? And where does HMRC draw the line?

Let’s break it down in a simple, no-jargon way. (And yes, there are always exceptions, so if you’re unsure — just ask!)

So… what is a business expense?

In HMRC’s words, a business expense must be “wholly and exclusively” for your business. That’s the golden rule.

A good way to think about it is this:
👉 If you wouldn’t have spent the money if it wasn’t for your business, there’s a good chance it’s allowable.

If the cost helps your business operate, deliver services, or earn income, it’s likely to qualify.

However… there’s another important rule to be aware of: “Duality of purpose.”

This means if something has both a business and personal use, HMRC will usually say no.

The easiest example is clothing:

• A smart suit for work ❌ (you could wear it personally)

• Steel toe boots, branded workwear, safety gear ✅

• A judge’s wig? Oddly enough… also allowable 😄

Common examples of allowable business expenses

Here are some of the most common expenses UK sole traders and limited companies can usually claim:

🔧 Office costs
Stationery, postage, printer ink, computers, and software subscriptions.

🚗 Travel expenses
Business mileage, parking, train fares, and overnight stays for work (but not commuting).

📱 Phone & internet
Business phone contracts, broadband (or the business portion), domain names, and hosting.

👩‍💼 Staff costs
Salaries, bonuses, pensions, employer National Insurance, and subcontractor costs.

🏢 Premises costs
Rent, utilities, and council tax for business premises.

📚 Training
Courses that relate directly to what you already do in your business.

📢 Marketing & advertising
Websites, business cards, networking events, online ads, branding.

👨‍💻 Professional fees
Accountants and bookkeepers (hello 👋), solicitors, consultants, and professional memberships.

🏠 Working from home
You can usually claim part of your home running costs using either simplified expenses or actual costs.

What doesn’t count as a business expense?

This is where people often get caught out.

❌ Personal expenses
Everyday clothes, gym memberships, personal meals.

❌ Client entertainment
Lunches, coffees, or events for clients — lovely, but not tax deductible.

❌ Fines and penalties
Parking tickets, late filing penalties — HMRC won’t help with those.

❌ Large asset purchases
Items over £1,000 often fall under capital allowances instead of normal expenses.

❌ Training for something completely new
If it’s preparing you for a brand-new career or business, it’s usually not allowable.

Blurring personal and business spending is one of the quickest ways to attract HMRC’s attention — so keeping things clear and separate really matters 👀

Do you need to keep receipts?

Yes. Yes. And yes again! HMRC expects you to keep records:

• Self-employed: at least 5 years after the 31 January deadline

• Limited companies: 6 years from the end of the financial year

This includes:

• Receipts

• Invoices

• Bank statements

• Mileage logs

Digital copies are absolutely fine — and much easier to manage. Software like Xero, QuickBooks, or receipt apps such as Dext, Hubdoc, or Apron can make this painless.

How do expenses affect your tax bill?

Expenses reduce your profit, and tax is worked out on your profit — not your income.

Example:

• Income: £40,000

• Allowable expenses: £10,000

• Taxed on: £30,000

That’s real money saved 💰And if you’re VAT registered, you can usually reclaim VAT on eligible purchases too.

Final thoughts

Getting your expenses right isn’t just about paying less tax — it’s about running your business properly and avoiding nasty surprises later.

If you’re ever unsure, check HMRC’s guidance or speak to a bookkeeper who can explain it in plain English (that’s where I come in 😊).

If you’d like help reviewing your expenses or setting things up properly, feel free to get in touch with Balanced Books by Bernie — I’m always happy to help.