What Can I Actually Claim? A Plain-English Guide to Allowable Expenses

In my experience, business owners fall into two camps when it comes to expenses. There are those who claim too little – simply because nobody has ever explained what HMRC actually allows. And then there are those who claim things they shouldn’t, pay for business costs from the wrong account, apply the wrong values, or misunderstand how the rules work in practice. Getting it wrong in either direction has consequences.

Both are more common than you’d think, and both are avoidable. But before we go any further, it’s worth being honest about something: the rules around expenses are personal and nuanced, and while we can explain the landscape clearly, we’d be doing you a disservice if we gave you hard absolutes. What follows is a guide to how the rules generally work – and a prompt to take advice on your specific situation before acting on any of it.

The Basic Test

HMRC’s test for whether something is an allowable expense is this: was it incurred wholly and exclusively for the purposes of your business? If the answer is yes, it may qualify. If there’s a personal element mixed in, it gets more nuanced – but that doesn’t automatically rule out a claim. It may just mean you claim a proportion rather than the full amount. How you calculate and document that proportion matters.

Working from Home

If you work from home, you may be able to claim a proportion of your household costs – heating, electricity, broadband, and in some cases a share of rent or mortgage interest. HMRC offers a flat rate of £10 per month for 25 hours or more of home working per month, which is simple but often underestimates the actual cost.

At Composure we work through a detailed spreadsheet with clients to capture the relevant figures properly, calculate the correct proportion, and compare that to the flat rate to make sure we’re using the right figure. That calculation then needs to be correctly declared on the individual’s personal tax return – and there are some genuinely complex areas to navigate, particularly around mortgage interest where a restriction applies that has to be factored in carefully.

One area that catches people out is the risk of unintended consequences from dedicating part of your home exclusively to business use. This can affect your principal private residence relief for capital gains tax purposes when you come to sell – something that is rarely considered at the outset and can be costly to discover later.

Building a garden office adds another layer of complexity entirely. Questions around who pays – the individual or the company – what gets tax relief, and how the asset is treated all need careful thought before work begins rather than after.

Travel and Mileage

The distinction between business travel and commuting sounds straightforward but in practice it often isn’t. For itinerant workers whose role requires them to travel to different locations, the position may be more generous than they realise. For those who travel regularly to the same place over a long period, or who are on extended assignments, the rules around what constitutes a temporary workplace and when a location becomes a permanent one can significantly affect what’s claimable. These are areas where the personal facts really matter and where advice is worth having.

Where you do have qualifying business travel in your own car, you may be able to claim 45p per mile for the first 10,000 miles and 25p thereafter. An additional 5p per mile may also be claimable for each passenger travelling on the same business journey. Meal allowances may apply depending on the time you leave home and the duration of the trip, subject to HMRC’s qualifying conditions.

Public transport, parking at client sites, and overnight accommodation for genuine business trips may also qualify. Parking at your regular workplace is one that is frequently overlooked.

The errors we see most often are claiming the wrong rate, claiming ordinary commuting costs which are not allowable, or not recording journeys at the time and trying to reconstruct them later. A mileage log doesn’t need to be complicated – date, destination, purpose, and miles – but it does need to exist.

Equipment and Technology

Mobile phones are a good example of where apparent simplicity masks real complexity. Where there is any personal use, the correct treatment is more involved than most people assume – and it becomes more complicated still where someone has multiple SIMs, separate personal and business lines, or a smart watch with connectivity. Most phone contracts are now all-inclusive, which creates additional issues when someone tries to reclaim a personal contract through the business. The method of payment matters too.

On larger asset purchases, capital allowances are governed by their own substantial legislation. The rules are complex and the right treatment depends on the nature of the asset, how it is used, and your business structure. This is not an area to approach on assumption.

Professional Fees and Subscriptions

Your accountancy fees may be tax deductible as a business expense – but this applies to fees for the business, not your personal tax return. Where a company pays for a director’s personal return, this may constitute a benefit-in-kind with tax and NIC consequences for both the individual and the company. It is also an area with potential legal implications that are worth understanding. At Composure we never charge the company for a director’s personal return.

Trade association memberships and professional subscriptions may qualify, but where these are paid on behalf of employees – including directors of owner-managed companies – they need to appear on HMRC’s approved list of professional bodies. Not all subscriptions make that list.

Training and Development

The rules here differ depending on whether you are a sole trader or operate through a limited company. The key principle centres on whether the training provides an enduring benefit to the business – in which case it may be capital rather than revenue in nature, with different tax treatment as a result. This is an area where case law matters and where a clear understanding of the relevant rules is important before making assumptions.

Common Mistakes

Some of the most frequent errors we see are worth naming directly.

Clothing is not claimable unless it is genuinely protective equipment or carries a permanent corporate logo. A suit bought for client meetings does not qualify – and this has been tested in the courts. The principle goes back to a case involving a barrister who argued that his robes were worn purely for professional purposes. The court’s position was clear: if the clothing could conceivably be worn outside of work, or was required partly for reasons of public decency, it does not meet the wholly and exclusively test.

Staff entertaining is another area of frequent confusion. Where employers provide entertainment for their own staff, the cost may be tax deductible but if the financial exemptions are exceeded or the criteria are not met, it can become a taxable benefit. That liability can either be reported through P11Ds and taxed on the individual employees, or the employer can choose to take responsibility for it through a PAYE settlement agreement – which is often the better outcome for staff relations but can be a costly way to resolve the position. A separate but related issue arises when staff attend client entertainment – this can inadvertently create a benefit-in-kind for those employees if it is not properly managed, even where the primary purpose is client-facing.

Gifts to clients may qualify up to £50 per person per year but only under specific conditions. Gifts of food, drink, tobacco, or vouchers exchangeable for those things do not qualify.

Charitable donations where something is received in return – a table at a charity dinner, for example – may not qualify as a straightforward deduction. The treatment depends on the specific arrangement.

Things That Are Often Missed

Annual health checks for directors may qualify as a tax-free benefit. Sight tests and corrective glasses may qualify where they are needed specifically for work using display screen equipment, provided strict conditions are met – this is not a blanket entitlement. Parking at your workplace may be deductible and is frequently overlooked.

A Note on Certainty

We set out to write a plain-English guide to allowable expenses and we hope this gives a useful picture of the landscape. But the honest truth is that expenses are one of the areas where the rules are most personal, most nuanced, and most dependent on individual circumstances. What applies to one business owner may not apply to another, even in apparently similar situations.

If anything here has prompted a question about your own position – whether you’re claiming something you shouldn’t, missing something you could, or simply not sure – that’s exactly the conversation we’re here to have.

We will only use your details to send you this series and occasional updates from Composure Accounting. You can unsubscribe at any time. For more information see our Privacy Policy.