What Expenses Can I Claim? A Guide for UK Small Business (Self-Employed and Limited Companies)

 

If you run a small business, understanding allowable expenses is the easiest way to legally reduce your tax bill. Every legitimate business expense you claim lowers your taxable profit, meaning you pay less money to HMRC.

However, the rules change depending on how your business is structured. Here is a straightforward breakdown of what you can claim as a self-employed sole trader versus a limited company.

 

The Golden Rule: “Wholly and Exclusively”

Regardless of your business structure, HMRC states that an expense must be wholly and exclusively for the purpose of running your business. If something has a dual purpose (used for both business and personal life), you can usually only claim for the specific percentage used for business, if you are self-employed.

 

Allowable Expenses for the Self-Employed

As a sole trader, your business expenses are deducted from your turnover to calculate your taxable profit. You then pay Income Tax and National Insurance on this remaining profit

Common examples include:

• Working from Home: You can calculate actual utility percentages or use Simplified Expenses flat rates (e.g., £10 to £26 per month depending on your hours).
• Vehicle and Travel: Claim actual vehicle running costs or use standard HMRC mileage rates (55p per mile for the first 10,000 miles, 25p thereafter – from April 26). Commuting to a regular workplace cannot be claimed.
• Office and IT: Stationery, software subscriptions, phone bills (business percentage only), and laptop equipment.
• Marketing: Website hosting, SEO services, social media ads, business cards, and print flyers.
• Stock and Materials: Raw materials, goods bought for resale, and direct subcontractor costs.
• Professional Costs: Professional indemnity insurance, trade union memberships, and your accountant’s fees.
• Clothing: Only protective gear (like steel-toe boots) or branded uniform. Everyday business wear (like a suit) is strictly disallowed.
• Training & Courses: You can claim for training that updates or refreshes your existing skills (such as a refresher course or an industry update). However, you cannot claim for courses that teach you a completely new skill or help you expand into a new business sector, as HMRC views this as a capital expense.

 

What Expenses Can a Limited Company Claim?

For limited companies, allowable expenses reduce your company’s profit, which directly lowers your Corporation Tax bill. Because a limited company is a separate legal entity from you personally, the rules around director expenses are much stricter.

 

Typical allowable expenses include:

• Director and Staff Salaries: Wages, director salaries, and Employer National Insurance Contributions (NICs).
• Pension Contributions: Direct company contributions into an executive or workplace pension scheme are highly tax-efficient.
• Business Insurance: Public liability, professional indemnity, and employers’ liability insurance.
• Trivial Benefits & Annual Events: Up to £150 per head for an annual event (like a Christmas party) and small employee gifts under £50.
• Equipment & Assets: Computers, office furniture, and machinery (claimed via Capital Allowances).
• Professional Fees: Solicitor fees for business contracts and annual accountancy fees.
• Travel and Subsistence: Train fares, flights, hotels, and reasonable meals while traveling away from your permanent workplace for business
• Training for Directors & Staff: The company can pay for training that is relevant to the business’s activities or the employee’s role. Unlike sole traders, a limited company can often pay for training that develops new skills, provided it directly benefits the company’s business operations.

 

 

Common Mistakes to Avoid (And Why It Matters)

Claiming expenses incorrectly can lead to HMRC penalties, interest, or unexpected tax bills. To stay on the safe side, you must keep clear records and receipts for all business purchases, and avoid claiming personal expenses.

To help you stay compliant, here are the most common pitfalls small businesses encounter:

• Claiming Everyday Clothing: Personal items—such as everyday clothing worn to work—cannot usually be claimed unless they are used exclusively for business purposes (for example, safety equipment or a required uniform). Buying a standard suit or a smart dress for a client meeting is not an allowable expense.

• Mixing Personal and Company Finances: If a personal or mixed-use item is paid for by a limited company, the cost would normally be posted to the director’s loan account. This means the director owes the company for the purchase. While this doesn’t affect how funds are withdrawn day-to-day, the balance does need to be repaid or dealt with correctly, as unresolved loan accounts can have serious tax consequences.
• Attempting to Claim Client Entertaining: Taking clients or suppliers out for lunch, drinks, or events is not tax-deductible. While it is a legitimate business activity, the cost must be adjusted out before calculating your tax bill.
• Losing Your Proof: HMRC can audit your records up to six years after you submit a return. If you don’t have a valid receipt or invoice, HMRC can disallow the expense. Digital copies and cloud accounting photos are fully accepted, so keeping paperwork digital is highly recommended.

 

 

Need Help Maximising Your Tax Savings?

Tracking expenses can be time-consuming, and missing out on valid claims means leaving money on the table. At Moore Accountancy, we help small businesses and limited companies streamline their bookkeeping and legally minimise their tax liability.

Contact the Moore Accountancy team today for a personalized review of your business finances.

 

Moore Accountancy
📍 1 Northway, Altrincham, WA14 1NN
📞 0161 470 7878
📧 info@mooreaccountancy.co.uk
🌐 www.mooreaccountancy.co.uk

*Disclaimer: Tax rules can change and individual circumstances vary. Always seek professional advice before making decisions based on general guidance.