Understanding Business Expenses

Getting to grips with what expenses you’re allowed to claim through your business seems like it should be fairly simple. HMRC say that as long as it’s “wholly and exclusively used by the business” then it’s allowable… And then go on to list twenty trillion exceptions and variations to the rules.

We thought it would be a good idea to look at some of the basic requirements for claiming expenses, and how the process works.

What are business expenses?

This may seem like an obvious question but lots of people find expenses confusing, and for good reason. We know it’s annoying when no one can give you a definitive answer of what is and isn’t an expense, but that’s because the answer is literally anything “wholly and exclusively used for your business”.

You’re probably thinking “surely they don’t mean everything”, but we really do.

What kind of things can I claim as a business expense?

It’s a very common question! We go over some classic examples below, but we will repeat the rule about expenses only being allowable if they’re “wholly and exclusively for your business” here and there.

Annual staff party expenses

Regularly hold Christmas parties or summer soirees for your staff? The good news is if it’s an annual event that all staff members can join in with, you should be able to claim it as an allowable business expense. It must cost no more than £150 per person though.

Bank charges

Any bank charges, such as account fees, loan charges, or credit card interest, can also be claimed as an allowable business expense.

Business rates

Commerical properties like shops and offices are subject to business rates, rather than the Council Tax we pay on our homes. Paying business rates is just another operating expense, so you can claim these on your tax return!

Food and drink

Food is sometimes classed as a personal expense because you’d be eating anyway, regardless of whether you’re at work or home, but there are times when it’s acceptable to claim.

HMRC usually only deem it acceptable to claim reasonable costs for associated meals if you occasionally travel somewhere away from your regular place of work.

Note the word “reasonable” here. You can’t have a slap-up meal at The Ritz just because you fancy it.

There are some grey areas here, so be sure to reach out to your accountant for assistance. HMRC helpfully produce subsistence benchmark rates. These are generally for employees, but they’re a useful guide if you are self-employed.

Gifts

This is another area of tax law that could fill a (probably very boring) book. To make it more exciting, gifts to employees follow different rules to those which apply to customers.

Staff gifts

You can give an employee something worth £50 or less, and still claim the cost because it counts as what HMRC call a “trivial benefit”. To be allowable, the gift must not be:

Gifts which don’t meet the conditions or which go over the £50 threshold put you into the realm of taxable Benefits in Kind. These have implications for your employee’s income tax, and your employer’s National Insurance conributions.

Client gifts

Gifts given directly to clients are tax-deductible as long as they are branded and cost less than £50, otherwise they’re classed as entertainment – which isn’t allowable.

But of course, this is HMRC so there are different rules if you give something away as part of a genuine competition, such as a prize draw.

And if you give a gift to a registered charity then the whole amount is deductible against tax. Phew!

Health checks, including eye tests

If any of your employees use computer screens regularly in their job, eye tests and general health checks can also be a claimable expense. Any further costs like contact lenses or glasses can only be claimed if they are strictly used as part of their employment and for screen-based working.

Insurance

Any business insurance you need to take out as part of running your company can be claimed as an allowance expense. This includes contents, employers’ liability, public liability, and professional indemnity insurance.

Training costs

This is a tricky one and isn’t necessarily intuitive. Training costs are allowable if they relate to your existing trade.

Travel expenses

Travelling for work, rather than making personal trips, is usually an allowable expense. There’s an important point that often catches people out here though; your commute is not a business trip. The rules are pretty similar to the those for meals, so they’re often grouped together. The short version is that it’s allowable if you’re making a journey outside your normal working patterns.

Pension payments

If you run a limited company then the business can make pension contributions as an employer. There isn’t a fixed limit as to how much you or the company can pay in, but the most you can save into your pot during the 2026/27 tax year before you have to pay tax on it is £60,000.

Phone and broadband costs

Broadband and phone lines that are set up exclusively for business use can also be claimed as a business expense when running a limited company. Mobile contracts in particular must be in the company’s name to claim the whole thing. Otherwise, personal contracts need to be apportioned so only calls or data used for work purposes are included as a business expense.

Professional subscription expenses

Again, this would be anything like magazine subscriptions or membership of professional bodies that directly relate to your role within the business.

Salaries – including as a director

Limited company directors often pay themselves a mixture of salary and dividends so they can be more tax efficient. You can offset the salary part against your Corporation Tax bill, too!

Using your home (or part of it) as an office

Working from home can be a cheaper alternative to paying for additional office or workshop space. If this is the case, then you can usually claim a percentage of your household utility bills and running costs as an allowable business expense – and possibly even a portion of your rent.

You’ll need to show that you’re only claiming for the part of the cost which relates to your business though, so double check the guidance for working this out if you work from home, or ask your accountant!

Am I allowed to claim expenses from a previous year?

This happens all the time. You incur an expense, and the bill turns up after the year-end. Well, the good news is that in general, yes you can claim for expenses after year-end for up to four years. As long as you are following all the rules for expenses, then you can retrospectively claim it against tax.

Can I claim for any pre-trade expenses?

Yes, you can. Pre-trading expenses are purchases you made for the business before you started trading. Anything you would be allowed to claim now the business is up and running is likely to be ok to backdate, as long as it’s ‘wholly and exclusively’ used for your business.

We know you’re probably already sick of us saying that, but it’s one of the key principles of claiming business expenses.

Is there an easier way to work out my business expenses?

HMRC understand working out your actual business expenses can be stressful – so they introduced flat rates (or simplified) expenses instead. Like the name suggests, rather than working out your actual expenses, you can use HMRC’s flat rate to calculate your claim instead.

Simplified expenses can be used by sole traders to claim expenses, and by business partnerships which don’t have companies as partners. Flat rates can be used for:

For some businesses it can be a much easier way to work out your expenses, but it isn’t for everyone!

Recording your business expenses

You do need to be able to prove any expenses you claim are for business purposes though. It’s why recording business expenses in your accounts is very important.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.