Allowable Business Expenses UK: A Simple Jargon-Free Guide for Limited Companies and Sole Traders

UK SME owner reviewing business expenses, receipts and financial records at a desk

Accounting support for limited companies and growing SMEs can start from £300 inc VAT, depending on your turnover, transaction volume, VAT position, payroll needs and the level of support required.

By Jessica

Business expenses can reduce the amount of profit on which your company or business pays tax. However, not every payment made from a business bank account is automatically tax deductible.

The basic rule is simple: the cost must usually be connected to your business, supported by a clear record and claimed in the correct way.

This guide explains common allowable expenses in plain English, how the rules differ between a limited company and a sole trader, and how to keep your records accurate and HMRC-friendly.

What is an allowable business expense?

An allowable business expense is a cost that is incurred for the purpose of running your business.

For a limited company, allowable expenses normally reduce the company’s taxable profit. This can reduce its Corporation Tax bill.

For a sole trader, allowable expenses normally reduce the profit reported on a Self Assessment tax return. This can reduce the Income Tax and National Insurance calculated on those profits.

A cost may be partly business and partly personal. In that case, you should normally claim only the business proportion.

For example:

  • A business-only mobile phone may be fully business-related.
  • A broadband connection used for work and personal browsing may need to be apportioned.
  • A laptop used 80% for business may only support a claim for the business proportion, depending on the circumstances.

The key is to make a reasonable claim that you can explain and support.

Limited company expenses versus sole trader expenses

The same type of cost can be allowable for both business structures, but the tax treatment is different.

Business structure Where the expense is claimed Tax effect
Limited company Company accounts and Corporation Tax calculation Reduces taxable company profit
Sole trader Self Assessment tax return Reduces taxable self-employed profit

A limited company is legally separate from its directors. The company should pay or reimburse genuine company expenses, and personal spending should not be mixed casually with company costs.

A sole trader and their business are not separate legal entities in the same way. However, the sole trader still needs to separate business and personal costs carefully.

This distinction matters when arranging accounting services for SMEs, especially where a business is growing, employing staff or considering incorporation.

Common allowable business expenses

Office and administration costs

Typical office and administration costs may include:

  • Stationery and printer supplies
  • Printing and postage
  • Office rent and business rates
  • Furniture used for business
  • Cleaning costs for business premises
  • Small tools and office equipment
  • Business-related storage costs

The cost should relate to the business. If an item has significant private use, keep a clear record of how you calculated the business portion.

Travel and mileage

Business travel can include journeys to visit clients, suppliers, temporary workplaces, training venues or business events.

Potentially allowable costs may include:

  • Train, bus and other public transport fares
  • Taxis for business journeys
  • Hotel accommodation on qualifying business trips
  • Parking charges
  • Business mileage in a personal vehicle
  • Reasonable subsistence on qualifying overnight trips

Ordinary commuting between home and a permanent workplace is generally not an allowable business journey.

Keep a mileage log showing:

  • Date of the journey
  • Starting point and destination
  • Business purpose
  • Number of business miles
  • Vehicle used

If you use an approved mileage method, check the current rate before submitting a claim. Alternatively, some businesses calculate the business proportion of actual vehicle costs. Do not mix methods incorrectly for the same vehicle.

Working from home

Many directors, employees and self-employed people work from home at least part of the week.

Depending on the structure and circumstances, you may be able to claim:

  • A proportion of heating and electricity
  • Business broadband costs
  • Council tax or rent, where relevant
  • A dedicated business telephone
  • Office furniture and equipment

Limited companies may reimburse eligible home-working costs under an agreed arrangement. Some use a flat-rate payment where the conditions are met, while others calculate a reasonable proportion of actual costs.

Sole traders may use simplified expenses or a reasonable calculation based on business use.

Do not claim the entire household bill simply because you sometimes work from home. Keep notes explaining the method used.

Phone and internet

A business mobile contract or business-only broadband connection is usually easier to identify and record.

Where a contract is used for both business and private purposes, separate the business element. Keep evidence such as:

  • The contract or invoice
  • Business call records, where relevant
  • A reasonable percentage calculation
  • Notes explaining how the percentage was decided

Professional fees

Professional costs are commonly allowable where they relate directly to the business.

Examples include:

  • Accountancy fees
  • Bookkeeping fees
  • Business tax advice
  • Legal advice on contracts
  • Debt collection costs
  • Business consultancy
  • Professional memberships connected with the trade
  • Business insurance advice

Personal legal work, such as private family matters, is not a business expense just because the business owner paid the bill.

Training and development

Training may be allowable when it updates or improves skills used in the existing business.

Examples could include:

  • Industry courses
  • Technical training
  • Relevant conferences
  • Professional development
  • Compliance or health and safety training

Training for an entirely new trade or unrelated career may be treated differently. Keep the course description, invoice and a short note explaining how it supports the business.

Equipment

Equipment can include:

  • Computers and laptops
  • Tools
  • Printers and scanners
  • Office desks and chairs
  • Cameras or specialist equipment
  • Trade machinery

Some equipment is treated as a normal business expense. More expensive or long-lasting assets may need to be dealt with as capital expenditure and claimed through the relevant capital allowance rules.

This affects when tax relief is given. It does not necessarily mean that the equipment is not a business cost.

Software and subscriptions

Software used to operate or grow a business may be allowable, including:

  • Cloud accounting software
  • Customer relationship management systems
  • Design software
  • Project management platforms
  • Cybersecurity tools
  • Cloud storage
  • Industry databases
  • Business subscriptions

Review recurring subscriptions regularly. Cancel services that are no longer needed and keep invoices for active subscriptions.

Marketing and advertising

Marketing costs can be allowable when they promote the business.

Examples include:

  • Website design and hosting
  • Domain names
  • Search advertising
  • Social media advertising
  • Printed leaflets and business cards
  • Trade shows
  • Business networking fees
  • Sponsorship with a genuine promotional benefit

Be careful with costs that are mainly private or social. A business event does not automatically make every related meal or activity allowable.

Insurance

Business insurance may include:

  • Public liability cover
  • Employers’ liability insurance
  • Professional indemnity insurance
  • Cyber insurance
  • Product liability insurance
  • Business premises cover
  • Commercial vehicle insurance

Personal life, health or household insurance is not normally an allowable business expense simply because the owner runs a company.

Bank charges and finance costs

Common business banking costs may include:

  • Business account fees
  • Card processing charges
  • Merchant fees
  • Business overdraft interest
  • Interest on business loans
  • Foreign exchange charges
  • International payment fees

Where finance is used partly for private purposes, claim only the business element. Keep loan agreements and statements so the interest and charges can be identified correctly.

Limited company director and accountant reviewing business expense records together

Costs that are usually not allowable

Some costs are commonly confused with business expenses but are normally disallowed or restricted.

Client entertaining

Taking a client for a meal or event may be commercially useful, but client entertaining is generally not deductible for Corporation Tax or Self Assessment purposes.

The business may still record the payment in its accounts, but it should be identified correctly so it is not deducted from taxable profit incorrectly.

Everyday clothing

Normal clothing is usually not allowable, even if you wear it for work.

Protective clothing, uniforms or specialist clothing required for the job may be treated differently. The clothing should be necessary for the work rather than simply suitable for a professional setting.

Personal costs

Private shopping, household spending, personal travel and private subscriptions should not be claimed as business expenses.

For a limited company, taking company money for personal spending can create director loan or benefit issues. For a sole trader, personal costs should be excluded from the business expense calculation.

Fines and penalties

Parking fines, speeding fines and other penalties are generally not allowable. A parking fee incurred during a business trip is different from a parking fine.

Why accurate records matter

Good records help you:

  • Claim every genuine business cost
  • Avoid claiming private expenditure
  • Prepare accurate accounts
  • Support Corporation Tax calculations
  • Complete tax returns for self employed people
  • Answer questions from your accountant
  • Respond to an HMRC enquiry
  • Understand your real business costs

Modern laptop and smartphone used for digital business record keeping and accounting

Simple record-keeping habits for growing SMEs

Use a consistent system throughout the year rather than trying to reconstruct expenses before your accounts deadline.

Useful habits include:

  1. Keep business and personal spending separate. Use a business bank account and business card where possible.
  2. Capture receipts promptly. Photograph paper receipts and save digital invoices.
  3. Add a short description. “Train to client meeting” is more useful than “travel”.
  4. Keep mileage records as you go. Do not rely on memory at the end of the year.
  5. Review expenses monthly. Look for missing invoices, duplicate payments and unusual transactions.
  6. Store records securely. Keep backups of digital documents.
  7. Ask before making unusual claims. This is especially important for cars, home offices, training and equipment.
  8. Reconcile your bank account regularly. This helps identify costs that have not been recorded correctly.

Digital records also support Making Tax Digital (MTD) readiness. Even where a particular filing obligation does not yet apply to your business, maintaining digital records makes reporting easier and reduces last-minute work.

When should you speak to an accountant?

You may benefit from professional support if:

  • Your limited company is growing quickly
  • You employ staff
  • You are VAT registered
  • You use a vehicle heavily for business
  • You work from home
  • You buy expensive equipment
  • You have mixed personal and business spending
  • You are unsure whether to claim actual or simplified costs
  • Your records are incomplete
  • You are looking for local accountants near me

Accountant Search is a curated directory and digital matchmaking/referral platform, not an accountancy practice. You provide details about your company and the support you need, and the platform can help introduce you to suitable accounting professionals.

You can find an accountant or review support specifically for a limited company accountant.

For wider planning, you may also find our guide to profit versus cash flow useful. If your current adviser is no longer meeting your needs, read our guide to switching accountants.

Self-Assessment tick-box and SA form

A limited company’s Corporation Tax return is separate from the director’s personal Self Assessment tax return.

You may need personal Self Assessment support if you receive dividends, have other income, receive taxable benefits or operate a separate self-employed business.

Self-Assessment tick-box instruction: when completing the SA registration form, tick the Self Assessment box if you need help registering for, preparing or filing a personal tax return. Include details of your income sources and whether you are a company director or self-employed.

If you need information about filing dates, check the current Self Assessment deadline guidance. This is a deadline reference only.

Final checklist

Before submitting your records to an accountant, ask:

  • Was the cost genuinely for the business?
  • Was it paid by the correct person or business?
  • Do I have an invoice, receipt or other evidence?
  • Is there any private use?
  • Have I recorded the business proportion?
  • Is it a normal expense or a capital purchase?
  • Have I kept enough information to explain the claim?

When in doubt, record the details and ask for advice rather than guessing. Accurate records help your business claim what it is entitled to while reducing the risk of errors.

Frequently asked questions

Can a limited company claim business expenses?

Yes. A limited company can generally claim genuine costs incurred for business purposes. The expense should be recorded correctly and may reduce the company’s taxable profit for Corporation Tax.

Can a sole trader claim the same expenses as a limited company?

Many categories overlap, including office costs, business travel, professional fees, marketing and software. However, the expense is reported differently: a limited company claims through its company accounts, while a sole trader claims on their Self Assessment tax return.

Can I claim expenses for working from home?

Possibly. The correct method depends on whether you operate through a limited company or as a sole trader, how much you work from home and whether the costs are partly private. Keep a reasonable calculation or use an eligible simplified method.

Is client entertaining an allowable business expense?

Client entertaining is generally not deductible for Corporation Tax or Self Assessment, even when it is intended to build a business relationship. Keep it separately identified in your records.

How long should I keep business expense records?

Keep invoices, receipts, mileage logs and supporting calculations for the required period that applies to your business and tax records. A digital filing system with regular backups can make this easier.

Can an accountant help with small business tax services?

Yes. An accountant may help with bookkeeping, expense reviews, Corporation Tax, VAT, payroll and tax planning. Accountant Search can help growing SMEs compare suitable professionals through its curated matching platform.