At a Glance
- You can claim any cost incurred ‘wholly and exclusively’ for business purposes
- Common claims include office costs, travel, professional fees, marketing, and training
- You cannot claim entertaining clients, fines, personal expenses, or your own wages
- Simplified expenses let you claim flat rates for mileage and working from home
- Always keep receipts as evidence — a phone photo is perfectly acceptable
- Good expense tracking reduces your tax bill and protects you in an HMRC enquiry
The Golden Rule: Wholly and Exclusively
The test HMRC applies is simple: was the cost incurred ‘wholly and exclusively’ for the purpose of your business? If the answer is yes, it is probably an allowable expense. If the cost had a personal benefit as well as a business one, you can usually only claim the business portion.
Example: You buy a laptop for £800. You use it 80% for business and 20% for personal use. You can claim £640 (80%) as a business expense.
Example: You take a client out for lunch. The entire cost of the meal is ‘business entertaining’ and is not allowable, even though it was for business purposes. This is a specific exception to the wholly-and-exclusively rule.
Example: You drive to a client meeting 20 miles away. The mileage is wholly for business. You can claim 45p per mile (for the first 10,000 miles).
The wholly-and-exclusively test applies to sole traders and partnerships. Limited companies have slightly different rules (they use the ‘wholly, exclusively and necessarily’ test for employee expenses).
Common Allowable Expenses
Here are the most common categories of allowable expenses for UK small businesses. Not every category will apply to you — just claim the ones relevant to your business.
Office costs: Stationery, postage, printing, phone bills, internet, computer software subscriptions. If you rent office space, the rent, rates, and utility bills are all allowable.
Travel: Business mileage (45p/mile for first 10,000 miles, 25p/mile after), train fares, bus fares, taxi fares for business journeys, parking, tolls, congestion charges, accommodation on business trips. You cannot claim commuting from home to a permanent workplace.
Vehicle costs: If you claim actual vehicle expenses rather than mileage, you can claim fuel, insurance, servicing, repairs, MOT, and road tax. You claim the business percentage of these costs. You can also claim capital allowances on the vehicle purchase price.
Professional fees: Accountant fees, solicitor fees for business matters, professional subscriptions to bodies relevant to your trade, costs of obtaining professional indemnity insurance.
Marketing and advertising: Website costs, social media advertising, Google Ads, business cards, flyers, networking event fees, PR costs.
Training: Courses that improve your existing business skills. For example, a web designer attending a coding course. You generally cannot claim for training that qualifies you for a new trade.
Staff costs: Salaries, wages, bonuses, employer’s National Insurance, pension contributions, agency fees, subcontractors.
Financial costs: Bank charges, credit card fees, interest on business loans, hire purchase interest, lease payments.
Insurance: Public liability, professional indemnity, employer’s liability, business contents insurance.
Clothing: Only protective clothing and uniforms with your business logo. Everyday clothing is not allowable, even if you only wear it for work.
Subscriptions: Trade body memberships, professional journals, business magazines.
Bad debts: Money owed to you that you have written off as uncollectable. You must have taken reasonable steps to recover it.
What You Cannot Claim
These are the most common expenses that business owners try to claim but HMRC disallows:
Client entertaining: Meals, drinks, events, and hospitality for clients or potential clients. This includes taking a customer to lunch, buying them coffee, or taking them to a sporting event. HMRC considers this non-deductible regardless of whether it generates business.
Fines and penalties: Parking fines, speeding tickets, late filing penalties, court fines. Even if incurred during business activity, these are never allowable.
Personal expenses: Anything with a personal benefit that cannot be split from business use. This includes personal grooming, gym memberships (unless directly relevant to your trade), personal travel, and non-business clothing.
Your own wages or drawings: As a sole trader, money you take from the business for personal use is not a business expense. It is simply a withdrawal of profit. It does not appear on your tax return as an expense.
Capital asset purchases (in full): When you buy equipment, a vehicle, or furniture for your business, you cannot deduct the full cost in one year. Instead, you claim ‘capital allowances’ over time through the Annual Investment Allowance (AIA), which lets most businesses deduct the full cost in the year of purchase anyway. The rules here are slightly different from standard expenses.
Loan repayments: You can claim the interest on a business loan, but not the capital repayment.
Payments to yourself through a limited company: Dividends and salary are not expenses of the company (salary is, but it goes through PAYE). This only applies if you operate through a limited company.
Simplified Expenses
HMRC offers ‘simplified expenses’ as an alternative to calculating the exact business proportion of certain costs. You can choose to use simplified rates or calculate actual costs — use whichever gives you the bigger deduction.
Business mileage: Instead of calculating fuel, insurance, servicing, and depreciation, you can claim a flat rate per mile:
- 45p per mile for the first 10,000 business miles in a tax year
- 25p per mile for business miles over 10,000
- 5p per mile for each passenger (if a colleague or employee travels with you on a business journey)
You cannot claim simplified mileage rates and actual vehicle costs for the same vehicle. Once you choose a method for a vehicle, you must stick with it for the life of that vehicle.
Working from home: HMRC offers simplified rates based on hours worked from home per month:
- 25-50 hours: £10 per month
- 51-100 hours: £18 per month
- 101+ hours: £26 per month
Alternatively, you can calculate the actual business proportion of your home costs (mortgage interest, rent, council tax, utilities, insurance, broadband). This usually gives a larger deduction but requires more record-keeping.
Living at your business premises: If you live at your business premises (e.g., a guest house or care home), you can claim a flat monthly deduction instead of calculating the private use of the premises.
Keeping Records of Expenses
For every expense you claim, you need evidence. HMRC can ask to see this at any point within their enquiry window (up to 5-6 years after the tax year).
For each expense, keep:
- A receipt, invoice, or bill showing the date, amount, supplier, and what was purchased
- A note of the business purpose (if it is not obvious from the receipt)
- Proof of payment (bank statement or card slip)
A phone photo of a receipt is perfectly acceptable. In fact, it is better than paper because it cannot fade, get lost, or be damaged. Set up a system:
- Take a photo of every receipt as soon as you receive it
- Save it to a cloud folder named with the tax year (e.g., ‘2025-26 Receipts’)
- Name the file with the date and supplier (e.g., ‘2025-09-12_Staples_OfficeSupplies.jpg’)
- Log the expense in your cash book or accounting software the same week
For mileage: Keep a log of every business journey. Our Mileage Log template is designed for exactly this. Record the date, starting point, destination, purpose, and miles travelled. You do not need to keep fuel receipts if you are claiming the simplified mileage rate.
For home office claims: If using actual costs, keep all your household bills (mortgage statement showing interest, council tax bill, utility bills, insurance, broadband). If using simplified rates, just keep a record of your hours worked from home.
The 15 minutes you spend each week recording expenses will save you hours at tax time and could save you hundreds of pounds by ensuring you claim everything you are entitled to.