Business Expenses for UK Small Businesses

Tracking expenses well does two things: it lowers your tax bill by making sure you claim everything you're entitled to, and it gives you the data you need to make good decisions about pricing, hiring and investing. Track them badly and the opposite happens — you overpay tax, you can't tell which lines of work are profitable, and you spend the last week of January reconstructing twelve months of receipts.

The HMRC rule, in one sentence

To be deductible against UK business profits, an expense generally needs to be incurred wholly and exclusively for the purposes of the trade. The phrasing matters: "wholly and exclusively" is stricter than "mostly". A laptop used only for client work is fully deductible. A laptop used half for client work and half for personal browsing is a partial claim — you can apportion the business-use percentage, but you have to be able to justify it.

For limited companies, the same principle applies under Corporation Tax rules, with the added wrinkle that personal-use elements often need to be reported as benefits in kind on a P11D and processed through payroll. Sole traders apportion in their Self Assessment.

What you can usually claim

The everyday categories are: office costs (rent, utilities, broadband, stationery), staff costs (salaries, NICs, pension contributions, training), professional fees (accountancy, legal, subscriptions to trade bodies), travel (mileage at HMRC's approved rates, train fares, accommodation), marketing (advertising, website hosting, photography), equipment (capital allowances or the Annual Investment Allowance), use of home as office (a flat rate or a calculated portion), and bank and finance charges. Our allowable expenses guide goes into each with examples.

What you can't (or shouldn't try to)

Client entertainment is not deductible for Corporation Tax or Income Tax (though it can be paid for from business funds with the right reporting). Clothing is not deductible unless it's protective or a uniform with a logo. Fines and parking penalties are not deductible. Personal expenses dressed up as business expenses are not just non-deductible — they can trigger penalties if HMRC opens an enquiry and finds a pattern. The risk is rarely worth the saving.

Build a receipt habit that takes 60 seconds

The biggest practical issue with expenses isn't knowing the rules — it's having the receipts when you need them. The fix is simple: a photograph or PDF of every receipt, uploaded the same day, tagged with the supplier and category. Apps like Dext, Hubdoc, FreeAgent and Xero do this automatically and OCR the receipt. Even a labelled folder in your phone's photos works for a one-person business. Our receipt tracking guide covers the workflows that actually stick.

Pair this hub with a spending policy

If you have employees or co-directors spending company money, a one-page spending policy prevents 95% of awkward conversations. Categories that need pre-approval, per-diem limits, what's reimbursable and what isn't, and how receipts are submitted. Our spending policy template is a starting point.