Business expenses: what you can actually claim, and what comes back

Most owners are either claiming too little or claiming things that will not survive a look. Both are expensive. Under-claiming costs you real money every single year, quietly, and nobody ever writes to tell you about it. Over-claiming is fine right up until a compliance check, at which point the disallowed amounts come back with interest and possibly a penalty sitting on top of them.

The rules are less mysterious than they look. There is one principle that decides almost everything, a short list of flat rates worth knowing by heart, and a handful of specific refusals that catch the same people out year after year.

The rule everything else hangs off

An expense is deductible if it is incurred wholly and exclusively for the purposes of the trade. That is the whole test, and it is stricter than 'it helped the business a bit'.

Wholly and exclusively is about the purpose of the spend, not the benefit that happens to follow. A laptop used only for work passes. A laptop used for work and for the family's television does not pass outright — but where business and private use can be separated by a clear, defensible measure, you claim the business proportion and leave the rest. Costs where the private purpose is baked in and cannot be stripped out get refused entirely.

That distinction is why a suit bought specifically for client meetings is not allowable while a branded polo shirt or a pair of steel toe-caps is. The suit also keeps you warm and decent in public, which is a private purpose you cannot separate out however sincerely you only wear it to work. Protective equipment and uniform carry no such dual purpose.

The mileage rate changed in April, and a lot of spreadsheets missed it

This is the most common out-of-date figure in UK small business bookkeeping right now. From 6 April 2026, the flat rate for cars and goods vehicles rose from 45p to 55p per mile for the first 10,000 business miles in the tax year. Above 10,000 miles it stays at 25p. Motorcycles are 24p a mile with no threshold at all.

The same rates do two jobs. They are the simplified expenses rate a sole trader or partner claims for their own vehicle, and they are the Approved Mileage Allowance Payment an employer can reimburse an employee tax-free for business use of the employee's own car.

There is one catch worth understanding before you start. Once you claim flat-rate mileage for a particular vehicle, you must keep using the flat rate for that vehicle for as long as it stays in the business. You cannot claim 55p a mile in a cheap year and then switch to actual running costs plus capital allowances in the year the clutch goes. Choose the method when the vehicle enters the business, and choose it on the numbers rather than on which one is easier this week.

Ten thousand business miles at 55p is £5,500 off your taxable profit. At the old 45p it was £4,500. If your template still says 45p, that £1,000 is money you are handing back for no reason at all.

Working from home: the flat rate, or an honest apportionment

There are two routes and they are not close in value. The simplified flat rate is a monthly amount based on hours of business use at home, and you need at least 25 hours a month for it to be available: £10 a month for 25 to 50 hours, £18 a month for 51 to 100 hours, and £26 a month for 101 hours or more. It is deliberately modest. Its virtue is that it needs no calculation and invites no argument.

The alternative is to apportion the real costs — rent or mortgage interest, council tax, heat, light, insurance, and repairs to the space itself — using a sensible measure such as rooms used and time used. For someone working full time from a dedicated room, this usually beats £26 a month by a wide margin. It asks you to be able to show your working, which is a fair trade for the difference.

Telephone and broadband sit outside the flat rate either way, so claim the business proportion of those separately even where you use the flat rate for everything else.

The four claims that come back

Client entertaining. Taking a customer to lunch is a perfectly sensible thing to do and it is not deductible for tax, however the invoice is worded. The VAT is not reclaimable either. Staff entertaining is a different rule with its own annual limit, so keep the two on separate codes in your bookkeeping rather than lumping everything under one heading and hoping.

Commuting. Travel between home and a permanent place of work is private travel, even when home is also your office and even when you are the only director. Travel from base to a customer's site, or between sites during the day, is business travel. The distinction is about the pattern of the journey, not the distance.

Everyday clothing. Covered above, and it is absolute rather than a matter of degree. Uniform, branded workwear and protective equipment pass. The smart shoes and the good coat do not, no matter what you wear them for.

Fines and penalties. Parking tickets picked up on a job, speeding fines, late filing penalties and interest on late tax are all non-deductible. The one that stings is the penalty itself: it is unquestionably a cost of running the business, and it is still not allowable.

Kit is not an expense at all

Buy a van, a machine, a commercial oven or a set of computers and you are not making a running-cost claim, you are buying an asset. Those go through capital allowances instead, which is a separate and generally generous regime. It is worth reading what you can actually write off when you buy kit before any large purchase, because the timing of the spend relative to your year end changes when the relief actually reaches you.

One interaction to watch: if you are using flat-rate mileage for a vehicle, you cannot also claim capital allowances on it. The flat rate is meant to cover the lot — fuel, servicing, insurance, tyres and the fall in value.

Putting it together: one sole trader's year

Illustrative figures, but an ordinary shape. A self-employed installer drives 8,400 business miles in 2026/27, works from a home office for around 90 hours a month, and runs a £45-a-month phone contract that is roughly 70% business.

Mileage: 8,400 × 55p = £4,620. Home working at the flat rate: £18 × 12 = £216. Phone: £45 × 70% × 12 = £378. Total claimed: £5,214.

With profits in the basic-rate band, the tax saved is income tax at 20% plus Class 4 National Insurance at 6% — 26% of £5,214, or about £1,356. On the old 45p rate the same year's claim would have been £4,374 and the saving about £1,137. The rate change alone is worth roughly £218 to this one person, in exchange for updating a single cell in a spreadsheet.

Keep the evidence, not just the number

A claim you cannot evidence is a claim you will lose. For mileage that means a log carrying date, journey, purpose and miles — a phone app is fine, a reconstruction at the year end is not. For everything else it means the receipt or the invoice, kept for five years after the 31 January filing deadline for that return if you are self-employed, and six years from the end of the accounting period if you trade through a company.

None of this is about squeezing out the last available pound. It is that the legitimate claims are almost always bigger than owners think and the risky ones are almost always smaller than they hope. Get the first group right and you rarely feel any pull towards the second — and if a letter does land, a compliance check usually starts with one narrow question rather than a general rummage. If you are not sure where your numbers stand at all, the five numbers every owner should know is the better place to start.

Common questions

Can I claim for lunch when I am working away from base?

Sometimes. The cost of food and drink on a genuine business journey away from your normal pattern of travel can be allowable, because the extra cost is caused by the business trip rather than by the ordinary need to eat. What is not allowable is the sandwich you buy near your usual workplace on an ordinary day, because you would have had to eat regardless. The practical test HMRC applies is whether the journey is outside your normal pattern — an occasional trip to a customer two counties away looks very different from the same run every Tuesday. Keep the receipt and note the journey it belongs to, because the claim stands or falls on the trip, not on the meal.

Can I put my mobile phone through the business?

It depends on whose name the contract is in. If you trade as a sole trader with a personal contract, claim the business proportion of the bill based on actual use and be able to justify the split — a month of itemised billing is enough to set a percentage you then apply consistently. If you trade through a limited company and the contract is in the company's name, the company can pay the whole bill and provide one mobile phone per employee without a benefit in kind arising, even where there is private use. That is one of the few genuinely tidy reliefs in this area, and it turns on the contract rather than on how you use the handset.

Do I really need a receipt for every single thing?

In principle yes, and in practice it matters more than owners expect. A bank statement shows that money left your account; it does not show what it bought or why the purchase was for the business, which is the part that determines whether the expense is allowable. For small cash items where a receipt genuinely was not issued, a contemporaneous note of what, why and how much is far better than nothing. What you want to avoid is a year end where a block of unexplained card payments gets coded to sundries. That pattern is exactly what invites a closer look, and it leaves you with no way of defending the claim.

Can I claim things I paid for before the business started trading?

Yes, and it is regularly missed. Expenses incurred in the seven years before trade begins can be relieved, provided they would have been allowable had the business already been trading. They are treated as if they were incurred on the first day of trading, so they land in your first accounting period rather than needing a separate claim. This typically covers professional fees, insurance, initial stock, software subscriptions, market research and travel to view premises. Equipment bought before you started is handled differently, through capital allowances, based on its market value when it enters the business. Dig out those receipts before you file the first return.