1. The basic rule: business, not personal
HMRC allows you to claim costs that are genuinely for the business. The core idea is simple: an expense should be “wholly and exclusively” for business. In practice, that means you can claim all of a cost if it is fully business-related, or a fair proportion if it has a mixture of business and personal use.
How this works depends on how you trade:
- Limited companies: The company is a separate legal person. If it pays for something that is personal to you, it may be treated as a benefit in kind or as a director’s loan.
- Sole traders & partnerships: There is no salary; you draw money from the business. Drawings themselves are not an expense. Only genuine business costs reduce taxable profit.
- Landlords: Expenses must relate to running and maintaining the rental business. Improvements and purchase costs follow separate rules.
- CIS workers & locums: You can claim normal business expenses, but HMRC expects strong evidence because these sectors are reviewed more often.
The rule itself is not complicated. The challenge is knowing how it applies to everyday things like phones, cars, home working and food.
2. Everyday running costs most businesses can claim
Many common costs fall into the same broad categories across different business types. The detail is in how you split business and personal use, and how you record it.
Phones and broadband
- Limited companies: A mobile contract in the company’s name that is used for business can usually be treated as a company expense. A personal contract paid by the company is more likely to be a benefit in kind.
- Self-employed: You can claim a reasonable business percentage of a personal phone bill. For example, if half your calls are business, half the contract cost may be claimable.
- Broadband can be split if there is both business and personal use. If it is mainly a household cost, only the business portion should be claimed.
Travel and mileage
Travel to customers, suppliers, job sites and temporary workplaces is usually allowable. Commuting from home to a fixed office is not.
- Public transport and business-related taxis are normally allowable.
- Parking for business visits is allowable; parking fines are not.
- Temporary workplaces: travel to a client or site that is not your permanent base is usually allowable, which is particularly relevant for locums and contractors.
Understanding mileage and vehicle costs
For many small businesses, using HMRC’s mileage rates is simpler than trying to split fuel, repairs and insurance.
- Self-employed: You can either use mileage rates or claim a fair business proportion of actual running costs. Once you pick a method for a particular vehicle, you generally stick with it.
- Limited companies: Directors and employees usually claim mileage at HMRC’s approved rates for using their own car. If the company owns or leases the car, other rules apply and there may be a taxable car benefit.
- HMRC’s mileage rates are designed to cover fuel, wear and tear and running costs.
- Whichever method you use, keep a clear mileage log. HMRC rarely accepts mileage estimates made at the end of the year.
Home office costs
Many businesses now have at least some element of home working. There are two main ways to deal with it.
Flat-rate home working costs
- Self-employed: HMRC offers a simple monthly allowance based on hours worked at home each month. This avoids having to analyse every bill in detail.
- It covers general household costs but not specific items that can be separately identified, such as business-only phone lines.
- Limited companies: Directors cannot use this flat-rate method personally. The company can reimburse reasonable additional costs of working from home instead.
Actual home working costs
- Costs such as heating, electricity and part of broadband can be split based on space and time used for business.
- Self-employed: it is common to use the number of rooms and the hours they are used to work out a fair proportion.
- Limited companies: directors usually claim only the extra cost of working from home rather than a slice of rent or mortgage. More complex arrangements require tailored advice.
Office supplies, software and subscriptions
- Stationery, printer ink and small office items are typically allowable.
- Software subscriptions used for business (for example, accounting, scheduling, practice management) are usually allowable.
- Professional subscriptions: memberships of recognised professional bodies may be allowable if they relate to your trade. Personal clubs or general lifestyle subscriptions are not.
Insurance and professional fees
- Business insurance (for example, public liability, professional indemnity) is allowable.
- Accountancy and bookkeeping fees for preparing business accounts and tax returns are allowable.
- Legal fees are allowable where they relate to the day-to-day running of the business (for example, debt collection or contract advice), but not usually for buying or selling a business or property.
- Landlords: legal fees to renew leases are often allowable; legal fees for buying a property are not.
3. Costs that often cause confusion
Repairs versus improvements
Repairs put something back to the condition it was in. Improvements make it better than it was before. The distinction affects how and when you get tax relief.
- Repairs are usually allowable immediately as expenses.
- Improvements are typically treated as capital, with relief spread over time or when the asset is sold.
- Landlords: replacing windows on a like-for-like basis may be a repair; adding an extension is capital.
Clothing
- Everyday clothing is not allowable, even if you only wear it for work.
- Protective clothing (for example, safety boots, hi-vis gear) is allowable.
- Genuine uniforms and branded workwear can be allowable.
- Medical, dental and care roles: scrubs and specialist garments required for the job are more likely to be allowable.
Food and subsistence
- Food while travelling to a genuine business appointment is usually allowable as subsistence.
- Regular lunches near your normal place of work are not.
- Locums and contractors: travel to temporary workplaces can make subsistence more widely allowable, even if you repeat that journey for a period of time.
Training and development
- Training to improve or maintain your current business skills is usually allowable.
- Training for a completely new trade or profession is much less likely to be allowable as an expense.
- Companies: staff training can often be treated as a normal business cost when it relates to their current roles.
Business gifts and entertainment
- Client entertainment is not allowable for tax, even if it feels like marketing.
- Business gifts may be allowable if they are small, carry your branding, and fall within HMRC’s limits.
- Staff entertaining: annual staff events up to a certain per-head limit can be tax efficient when structured correctly. Directors-only events often do not qualify.
4. Sector-specific points: landlords, CIS workers and locums
Landlords
- Letting agent fees and commissions are usually allowable.
- Mortgage interest is normally given as a basic rate tax credit for residential property.
- Safety checks, insurance, and routine repairs are generally allowable against rental income.
- Replacement Domestic Items relief may apply to furnishings and white goods in residential lets.
- Legal fees for buying a property or extending a lease are usually treated as capital and not as immediate expenses.
CIS workers and trades
- Tools, small equipment and consumables are normally allowable.
- Larger items of equipment that last several years may need to be treated as assets with relief claimed over time.
- CIS tax deducted at source should match your CIS deduction statements; HMRC often checks this carefully when you claim a refund or offset.
- Travel to changing sites and temporary workplaces is often allowable, but commuting to a fixed site over the long term may not be.
Locums and contractors
- Travel to surgeries, clinics, schools or client sites where you do not have a permanent base is often allowable.
- Professional indemnity insurance, registrations and CPD costs are usually allowable where they relate to your current role.
- Company versus sole trader: whether you work through a limited company or in your own name affects how you take income, but many of the underlying expense rules are similar.
5. VAT and expenses
VAT does not change whether something is an allowable expense, but it affects how much you can reclaim if you are VAT-registered.
- You can usually reclaim VAT on business purchases if you have a valid VAT invoice.
- Mixed-use costs: where there is personal and business use, you should reclaim only the business portion of the VAT.
- Businesses on certain VAT schemes, such as the Flat Rate Scheme, may have restricted ability to reclaim VAT on expenses.
- Some items (for example, most client entertainment) do not allow a VAT reclaim even if you consider them part of your business.
6. Records and what HMRC actually looks at
In practice, HMRC is less interested in how polished your reports look and more interested in whether you can show where the numbers came from.
- Keep digital copies of invoices and receipts wherever possible.
- Maintain a simple mileage log with dates, destinations and reasons for trips.
- Use clear categories in your bookkeeping software rather than one large “miscellaneous” bucket.
- For CIS workers, keep all monthly CIS deduction statements. These are often checked against what you claim.
- For landlords, keep mortgage statements, service charge summaries and letting agent statements together so that rental income and costs can be reconciled.
Good records do not need to be complicated. They just need to be consistent and complete enough that someone independent could follow the story.
How Greater London Bookkeepers can help?
Allowable expenses are not about pushing every possible cost through the business. They are about making sure that the genuine costs of running your business are properly reflected in your accounts and tax returns. That keeps your tax bills accurate, reduces the risk of HMRC queries and gives you a more honest picture of how the business is performing.
Greater London Bookkeepers (UK) Ltd works with UK businesses that want clear figures, well kept records and predictable tax outcomes. If you would like to "sense" check how you are currently claiming expenses, you can outline your situation on our contact page.