With the new tax year fast approaching, it’s the perfect time for business owners to get clear on what expenses they can and can’t claim.
While many costs feel like they should be deductible, HMRC rules state that ‘expenses must be wholly and exclusively for business purposes’. Getting this wrong can lead to overpaying tax or even unwanted attention from HMRC if you’ve paid too little.
To help you stay on track, we’ve outlined some common misconceptions below, along with a helpful breakdown of allowable and non-allowable expenses.
Common misconceptions
One of the biggest misunderstandings we see is the assumption that anything loosely connected to your business can be claimed. Unfortunately, that’s not the case.
For example, client entertainment, everyday clothing, and your daily commute are all commonly misclassified as business expenses, but HMRC doesn’t allow them.
Another grey area is mixed-use costs. In many cases, expenses that have both personal and business use need to be apportioned, with only the business element being allowable.
However, there are some important exceptions. For example, limited companies can provide one mobile phone per employee or director, and there is no Benefit in Kind charge on private use.
Similarly, use of home is often claimed using HMRC’s simplified flat-rate method, which is based on the number of hours worked from home, rather than splitting individual household bills.
Ultimately, it usually comes down to one key principle: if there’s a personal element, costs must be separated.
What you can claim
There are a wide range of legitimate business expenses you can claim, provided they meet HMRC’s criteria. These typically include things like workspace costs, professional fees, marketing and advertising, business travel, and employee costs such as wages, pensions and work-related training.
You may also be able to claim for use of other things such as software subscriptions and insurance (often through capital allowances rather than as day-to-day expenses).
For a full, detailed breakdown of allowable expenses, download our expenses fact sheet.
What you can’t claim
Expenses such as client entertainment, fines and penalties, and everyday commuting to a permanent workplace won’t qualify for tax relief, even if they feel business-related.
In some cases, these costs can still be put through a limited company, but they won’t reduce your tax bill. For example, client entertainment and fines are disallowed for corporation tax purposes.
Personal costs are another key area to be aware of. If these are paid through the company, they’re typically treated as income for the director, which can create additional tax implications.
Clothing is another common trap. Unless it’s protective gear or a uniform (which is ideally branded), it won’t qualify. Similarly, training that helps you start a new trade (rather than develop your existing one) can’t be claimed.
To see a complete list of non-allowable expenses, download our fact sheet to understand what you can’t claim.
Understanding what you can and can’t claim is essential for staying compliant and making sure you’re not paying more tax than necessary.
If you’re unsure about any expenses or want tailored advice ahead of the new tax year, our team is here to help. Get in touch to make sure everything is set up correctly from day one.
