One of the most common questions we get asked is: “What exactly counts as a business expense?”
It’s a great question, as well as an important one, because claiming legitimate expenses helps reduce your taxable profits and, ultimately, your tax bill.
So, what qualifies?
In simple terms, a business expense is any cost that is “wholly and exclusively” incurred for the purpose of running your business. That might sound a bit vague, but HMRC is looking for a clear link between the expense and your business activities.
Common examples include:
- Office rent, utilities, and supplies
- Staff salaries and pensions
- Accountancy and legal fees
- Marketing and advertising costs
- Travel expenses (excluding home-to-work travel)
- Business insurance
- Software subscriptions
What doesn’t qualify?
Personal costs, even if loosely connected to your work, typically don’t count.
Common examples include:
- Daily commute costs
- Client entertainment (not allowable for tax relief)
- Clothing, unless it’s a uniform or protective gear
- Non-business-related meals or holidays
What about mixed-use expenses?
Some expenses, like your phone bill or internet, may be used for both personal and business purposes. In those cases, you can only claim the business-use portion. It’s important to keep a reasonable record as HMRC may ask how you worked it out.
4 top tips to keep compliant
Below, we’re rounded up some useful actions to keep you on track:
- Ensure you keep good records. Store receipts and invoices digitally for all business-related purchases. Tools like Dext make this really easy.
- Separate your finances. It’s helpful to have a dedicated business bank account to avoid mixing personal and business transactions.
- Make sure you review expenses regularly. Revisit your expenses quarterly to ensure you’re not missing out on any allowable claims.
- There’s never a silly question, so seek professional advice if you’re unsure – incorrect claims can lead to penalties.
How can we help?
Need help navigating your business expenses? Get in touch with our team at tax@haroldsharp.co.uk or call 0161 905 1616.
Emma Round
Accountant | Manager
0161 905 1616
esr@haroldsharp.co.uk