What Qualifies as a Business Expense?
What qualifies as a business expense is one of the questions we get asked about most, often closely followed by will HMRC ask for proof of expenses?
Running a business means keeping on top of your numbers and understanding what qualifies as a business expense is key to keeping your tax bill as low as legally possible.
But what exactly can you claim? And where do HMRC draw the line?
In your guide below we will try to keep it super simple, but there are of course exceptions to every rule, so please do get in touch if you have any questions…
So, what is a business expense?
A business expense is any cost that is “wholly and exclusively” for the purpose of running your business.
That’s HMRC’s golden rule.
If you wouldn’t have spent the money if it weren’t for your business, chances are it qualifies.
Think of it this way: if your expense supports your business to operate, deliver services, or generate income – it’s probably deductible.
BUT, there’s a big caveat – case law shows that “duality of purpose” is almost as important a rule.
The easiest example to give would refer to clothing. If you buy a suit for work, that’s not allowable as you can wear it for other purposes (even if you wouldn’t!). Steel capped boots, branded apparel or your wig (if you’re a judge) on the other hand – allowable.
What are some common examples of allowable business expenses?
Here are the main categories most UK sole traders and limited companies will recognise:
🔧 Office costs – Stationery, postage, printer ink, and even your computer or software subscriptions.
🚗 Travel expenses – Mileage, parking, train fares, and accommodation when travelling for business (but not if you are commuting!).
📱 Communications – Business phone contracts, broadband, and domain names.
💼 Staff costs – Salaries, bonuses, pensions, and employers’ NI.
Premises costs – Rent, utilities, council tax (for business premises).
📚 Training – Courses directly related to your current business operations.
📢 Marketing & advertising – Website costs, business cards, networking and online ads for example.
👨💻 Professional fees – Accountants, solicitors, consultants, and subscriptions to professional bodies.
And yes, you can also claim part of your home running costs if you work from home, using simplified expenses or actual costs. We break that down in more detail in our Home Office Expenses Explained post 🏠.
What doesn’t count as a business expense?
Ah, the tricky bit! Here’s where many get caught out:
❌ Personal expenses – like buying clothes (unless it’s a uniform – see above), gym memberships, or everyday meals.
❌ Client entertainment – taking a client out for lunch? Lovely gesture, but not tax deductible.
❌ Fines and penalties – parking fines or late payment charges are never allowable.
❌ Asset purchases over £1,000 – these usually need to be treated as capital allowances, not regular expenses.
❌ Training – if it’s in something completely new to you…
Remember: blurring the lines between personal and business spending can raise red flags with HMRC, so keep things separate and squeaky clean 👀.
What are the funniest things we’ve been asked about claiming??
Ha! Now you’re talking… we get all sorts of questions from the sublime to the ridiculous…
What do all of the below have in common?
❓I’m a barber and I’ve booked a hair transplant – is that tax deductible?
❓My new business comes primarily from networking, and mainly from a walking group I’m part of… can I claim for a new pair of walking boots as tax deductible?
❓ Can I sponsor my daughter’s football team and claim that as a tax-deductible business expense??
❓ If I bid on (and win) an expensive item at a charity auction, can I claim gift aid on the entire amount?
❓I’ve got a new hi-tech prosthetic leg for work – can I claim for this through my limited company?
❓ Is a hearing aid tax deductible as I need to able to hear people in meetings?
❓ Can I put my daughter’s wedding through as a business expense because I am inviting clients
Yep, you’ve guessed it – the only thing they have in common is that the answer is primarily a resounding No!
(Small print applies in exceptional circumstances – always check with your accountant or tax advisor when considering claiming for something unusual.)
Do you need to keep receipts?
Yes, yes, yes! 📂
HMRC expects you to keep records for at least 5 years after the 31 January submission deadline of the relevant tax year if you’re self-employed, or for six years from the end of the last company financial year they relate to if you operate through a limited company. This includes:
- Receipts
- Invoices
- Bank statements
- Mileage logs
Digital copies are fine (and often easier to manage). Accounting software like Xero or QuickBooks, or receipt capturing software such as Dext, Apron or Hubdoc can help you stay organised and ready for any unexpected enquiries!
How does claiming expenses affect your tax?
Claiming legitimate business expenses reduces your profit, and because tax is calculated on your profit, this can significantly lower your tax bill.
Let’s say you earn £40,000 in income and spend £10,000 on qualifying expenses. You’ll only be taxed on the remaining £30,000. That’s real money saved 💰
If you’re VAT registered, you can also usually reclaim VAT on eligible purchases.
Final thoughts: stay smart and compliant ✅
Getting your expenses right isn’t just about paying less tax – it’s about running a healthy, sustainable business. If in doubt, always check HMRC’s official expenses guidance or speak to a trusted accountant.
Got more questions or want help reviewing your expenses? We’d love to help. At IN Accountancy, we offer straightforward advice that makes sense and saves you money.
Need support keeping track of expenses? Check out our blog on the best accounting software for UK small businesses 💻
To get our What Qualifies as Business Expense pdf guide download click here
