What You Can Claim as a Business Expense in the UK

HMRC has one rule for what counts as an allowable business expense: the cost has to be "wholly and exclusively" for the business. That phrase does most of the work, and it's stricter than it sounds.

In practice most directors land on one side of the line or the other, either overpaying tax for years by claiming too little or setting up an awkward conversation with HMRC by claiming too much.

Working from home

If you run the company from home, you can claim a share of your household costs. Only the share that relates to the business, and HMRC is specific about how that gets worked out.

There are two routes:

• A small flat amount the company pays you for home working, without needing to justify it room by room and requires almost no admin, which is why most small companies use it.
• A proportional claim based on actual costs: rooms used, hours worked, a fair split of heating and electricity. It can add up to more, but you need real numbers behind it. Some companies formalise this with a licence agreement, effectively renting the space from the director.

Either way, redecorating the spare room isn't a business cost. HMRC treats that as a home improvement, even though the desk you put in it is fine.

Travel

Getting to your normal place of work isn't claimable, however far it is or however you travel. It's a personal cost, same as anyone with a regular job.

Going to a client, a supplier or a conference is a different matter, because none of those is your normal base. That travel is allowable, and so is the parking and any tolls.

The distinction is temporary versus permanent, and HMRC has a test for it. A workplace stops being temporary once:

• You're there 40% of your time or more
• The arrangement runs longer than 24 months

Both conditions have to be true together.

Visit a client’s site three days a week on an 18-month project, and travel stays claimable throughout. But relief stops the moment you know the arrangement will pass two years. Sign an extension in month 16 that takes you past the two-year mark, and the workplace tips over into permanent. The travel stops being claimable straight away.

Nobody expects to track this when a project starts. It's worth a note in the diary around month eighteen on anything open-ended.

Equipment and software

Day-to-day costs, like software subscriptions or a one-off repair, come straight off your profit before tax, the same year you pay for them.

Bigger purchases, a laptop, machinery, a vehicle, usually go through capital allowances instead of being deducted all at once, though most small companies can claim the full cost straight away, because the annual limit is far higher than anything they're realistically going to buy. Leasing works differently again, usually treated as a straightforward running cost.

Mixed-use equipment needs a bit more care. A laptop used mostly for work is fine even with some personal browsing on it, but once personal use is significant, only the business share is safe to claim.

Entertainment, staff events, and gifts

Client entertainment is out. Meals, drinks, event tickets, anything hospitality-shaped, regardless of how business-related the conversation, and the same goes for subcontractors.

Staff entertainment is different, and more generous than most directors realise. Companies can spend up to £150 per head a year on staff events, whether one Christmas party or a few smaller ones that add up to the same limit, fully deductible with no extra tax for the staff who go. This applies even to a one-person company: a Christmas meal under the threshold is a legitimate claim.

Go £1 over the £150 though, and all £151 becomes taxable. Paying for events like this on a corporate card keeps the receipts and the running total in one place.

Gifts follow their own rules. Up to £50, a staff gift can usually be given tax-free as a trivial benefit, as long as it isn't cash or tied to performance. Directors of close companies, which covers most small limited companies, have a further cap of £300 of trivial benefits each per year. Six £50 gifts and you're done for the year.

Client gifts work differently: branded items with your company's name are fine as advertising, up to £50 a year, but food, drink, tobacco and vouchers don't count. Go a pound over, and like the staff party rule, the whole thing stops being deductible.

Subsistence sits apart from all this. Food and a hotel while you're away on a business trip are usually fine, same as the travel to get there.

The ones that still catch people out

A parking ticket on the way to a client meeting is still yours to pay, because HMRC's view is that you could have avoided it.

Streaming subscriptions and gym memberships are out too - nobody at HMRC cares how much better you work after a session.

The same logic applies to clothing - only genuine work clothing, like uniforms or protective gear is claimable.

And dinner for a freelancer or contractor sits in the same category as client entertainment, even if they feel like part of the team.

Why it's worth getting right

Claiming properly lowers your taxable profit, which lowers your Corporation Tax bill. That’s 19% up to £50,000 of profit, and 25% above £250,000, tapered in between. Over a year, that difference adds up.

If you get it wrong, nothing dramatic happens straight away. HMRC asks for evidence, and if it doesn't hold up, the expense gets disallowed and your tax bill adjusted, sometimes with interest added on top. A paperwork problem more often than a crisis, but worth avoiding.

So keep the receipt, note what it was for, and ask whether you'd have paid this anyway, without the business. If the answer is yes, it's probably not allowable. That question is a lot easier to answer when the company's spending isn't mixed in with your own.