Business Expenses UK: The 7 Most Misunderstood Tax Deductions Costing You Money

As an experinced accountant who has processed over 1,000 UK tax returns, I see the same business expense mistakes repeated year after year. This guide reveals the commonly misunderstood deductions that could be saving you hundreds—or even thousands—in tax.

Why Most Business Expense Guides Miss the Mark

You've probably seen dozens of articles listing "allowable business expenses." They all tell you the same thing: claim your office supplies, travel costs, and professional fees. But here's what they don't tell you:

The real tax savings come from understanding the grey areas—the expenses that are technically allowable but rarely claimed because business owners don't realise they qualify.

After 15+ years preparing accounts for UK sole traders, limited companies, and freelancers, I've identified seven frequently asked questions about business expenses that reveal significant missed deductions.

The "Wholly and Exclusively" Rule: What HMRC Actually Means

Before we dive into specific expenses, let's clarify the golden rule that confuses everyone.

HMRC states expenses must be incurred "wholly and exclusively" for business purposes. Most people interpret this too strictly.

What This Actually Means:

It DOESN'T mean the expense must be 100% business-only with zero personal benefit.

It DOES mean the primary purpose must be for your business, even if there's an incidental personal benefit.

Real Example from My Practice:

One of my clients, a marketing consultant, hesitated to claim £800 for a business skills course because she "enjoyed learning."

I explained: If the purpose of attending was to improve her business skills (which it was), the fact that she personally enjoyed it doesn't disqualify the expense. The course was wholly and exclusively for business—personal enjoyment was merely incidental.

Result: She claimed the full £800, reducing her tax bill by £160-£320 depending on her tax rate.

FAQ #1: "Can I Claim My Mobile Phone Bill If I Use It for Personal Calls?"

Short Answer: Yes, but you must apportion it reasonably.

The Mistake I See:
Most people either:

• Don't claim it at all (leaving money on the table)
• Claim 100% (risking an HMRC challenge)

The Smart Approach:

For Contract Phones:

1. Review your last 3 months of bills
2. Estimate business vs personal usage percentage
3. Apply this percentage consistently
4. Document your calculation method

For Pay-As-You-Go:
Only claim top-ups you can directly link to business use.

Pro Tip for Limited Companies:

If your company provides you with a mobile phone, the entire cost is a company expense, and there's no benefit-in-kind charge to you personally—even with personal use—as long as there's some business purpose.

FAQ #2: "Can I Claim for Working from Home If I Don't Have a Dedicated Office?"

Short Answer: Absolutely yes—and this is one of the most under-claimed expenses I see.

The Myth: You need a separate room used exclusively as an office.

The Reality: You can claim if you regularly work from home, even from your kitchen table or sofa.

Two Methods to Choose From:

Method 1: Simplified Expenses (Easiest)

HMRC's flat rate based on hours worked from home per month:

Key Advantage: No receipts required, HMRC rarely challenges these.

Method 2: Actual Costs (Higher Claims)

Calculate the business proportion of:

• Heating and electricity
• Council tax (business portion)
• Mortgage interest (sole traders only) or rent
• Internet and phone line
• Building insurance
• Repairs and maintenance

Warning for Homeowners:

Be cautious about claiming too high a proportion if you own your home. Claiming more than one room could trigger a Capital Gains Tax liability when you sell. For most people, simplified expenses is safer.

FAQ #3: "Can I Claim Lunch If I'm Working Alone?"

Short Answer: No for routine lunches, but YES in specific circumstances most people don't know about.

The General Rule: Your everyday subsistence while working at your normal location isn't allowable.

But Here Are the Exceptions:

1. Temporary Workplace

If you're working at a location that isn't your permanent workplace for less than 24 months, meals are allowable.

2. Overnight Business Travel

Hotels plus reasonable meals are allowable when travelling for business.

3. Working Exceptionally Late

If you work significantly later than usual (e.g., till midnight on a deadline), the cost of an evening meal can be claimed.

What's "reasonable"?

• UK meal: up to £15-£25 is rarely challenged
• Overnight UK: £25 for evening meal + breakfast
• Don't claim alcohol unless it's modest with a meal

The Coffee Shop Question:

"Can I claim my daily Starbucks?"

If you're employed: No, sorry.

If you're self-employed and it's genuinely your mobile office: It's a grey area. If you use the coffee shop as a workspace (and can prove it with work produced there), a proportion might be allowable. I'd recommend claiming no more than 2-3 days per week to be safe.

FAQ #4: "What About My Car—Can I Claim If I Use It Personally Too?"

Short Answer: Yes, and there are two methods that can save you thousands.

Method 1: Mileage Allowance (Best for Sole Traders)

HMRC's approved rates for 2025/26:

• First 10,000 business miles: 45p per mile
• Over 10,000 business miles: 25p per mile
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

What's Included:
Fuel, insurance, road tax, servicing, MOT, depreciation, repairs

What Counts as Business Mileage?

YES, you can claim:

• Home to client/supplier meetings
• Home to temporary workplace (under 24 months)
• Between business locations
• Bank runs for business
• Collecting business supplies

NO, you cannot claim:

• Home to permanent workplace
• Commuting
• Personal journeys
• Detours for personal errands

Critical: Keep a mileage log with date, destination, purpose, and miles.

Method 2: Actual Costs (Better for Limited Companies)

Company claims:

• All running costs
• Lease payments
• Depreciation via capital allowances

Then apportion between business and private use.

Pro Tip—Electric Vehicles:

100% First Year Allowance for new electric cars means companies can claim the full cost against profits in year one. Plus, BIK rates are incredibly low (2% for 2025/26).

FAQ #5: "Can I Claim Clothing for Work?"

Short Answer: Rarely—but there's a crucial exception.

The Frustrating Rule: You CANNOT claim ordinary clothing, even if you only wear it for work.

Why? HMRC's view: clothing is dual-purpose. You could wear it outside of work, so it's not wholly and exclusively for business.

This means NO to:

• Suits for client meetings
• Smart shoes
• Regular business attire
• Even if you never wear them personally

What You CAN Claim:

1. Uniforms

Distinctive clothing with company branding or uniform requirements.

Examples from my client base:

• Chef whites with company logo
• Hi-vis jackets with business name
• Security guard uniform
• Nurse scrubs

2. Protective Clothing

Essential for health and safety:

• Steel-toe boots (construction)
• Protective goggles
• Disposable gloves (healthcare, beauty)
• Hard hats
• Specialist safety equipment

3. Costumes

For performers, actors, or character roles.

4. Cleaning/Laundering

If you can claim the clothing, you can claim cleaning costs.

Pro Tip: Some industries have flat-rate expense allowances for uniform maintenance. Check HMRC's list of occupations with industry-wide allowances.

FAQ #6: "How Much Can I Really Claim for Equipment and Technology?"

Short Answer: More than you think, and timing matters.

The Confusion: People mix up revenue expenses (deducted immediately) and capital expenses (claimed via capital allowances over time).

Small Items—Revenue Expense (Claim Immediately):

Under Cash Basis, equipment costing under £500 can be claimed in full immediately.

Examples:

• Laptop: £800 (claimed this year)
• Office chair: £200 (claimed this year)
• Software subscriptions: £40/month (claimed monthly)
• Printer: £150 (claimed this year)

Expensive Equipment—Capital Allowances:

Annual Investment Allowance (AIA):

You can claim up to £1 million per year on qualifying plant and machinery.

What this means in practice:
Unless you're spending over £1m on equipment, you can claim 100% of the cost in year one.

Examples:

• High-spec computer: £2,500 (100% year one)
• Van: £15,000 (100% year one)
• Office furniture: £3,000 (100% year one)

Exception—Cars:
Different rules apply. Writing Down Allowance rates depend on CO2 emissions:

• 0 emissions (electric): 100% first year
• Under 50g/km: 18% per year
• Over 50g/km: 6% per year

Software Subscriptions:

Monthly subscriptions (Xero, Microsoft 365, Adobe Creative Cloud) are revenue expenses—claim in full.

FAQ #7: "Can I Claim My Professional Development and Training?"

Short Answer: YES—and this is massively under-claimed.

The Rule: Training to update or improve existing skills for your current business is allowable. Training for new skills to start a different trade is not.

What's Allowable:

✅ Courses to enhance current business skills:

• Marketing courses for self-employed consultants
• Coding courses for existing developers
• Excel training for bookkeepers
• Industry conferences
• Professional accreditation renewals

✅ Books and publications:

• Industry-specific books
• Professional journals
• Online learning platforms (LinkedIn Learning, Udemy for relevant courses)

✅ Professional memberships:
Check HMRC's list of approved professional bodies

Common examples:

• ICAEW, ACCA, CIMA (accountants)
• RICS (surveyors)
• Law Society (solicitors)
• RIBA (architects)
• Annual fees AND subscription journals are allowable

What's NOT Allowable:

❌ Training for a completely new career
❌ Personal development (life coaching, unless you're a life coach)
❌ Gym memberships (even if you claim they improve productivity)

The Expenses HMRC Is Watching Closely in 2025/26

Based on HMRC guidance and my experience with enquiries, these are the hot-button expenses that attract scrutiny:

1. Home Office Claims Over 30%

Claiming more than 30% of household costs as business use often triggers a review. Unless you run a B&B or similar, be conservative.

2. Entertainment and Meals

Client entertainment is NOT allowable (a common mistake). Staff entertainment is, within limits.

3. Spouses on Payroll

Paying a spouse is fine if:

• They actually work for the business
• The salary is reasonable for work done
• There's evidence of work (timesheets, emails, work product)

HMRC has seen too many "creative" arrangements where spouses are paid £12,570 (the personal allowance) for minimal work.

4. Cash Expenses Without Receipts

If you're claiming cash expenses, have receipts or bank statements. Credit card statements alone aren't enough—you need to prove what was purchased.

5. Round Numbers

£500 exactly for travel? £1,000 exactly for equipment? HMRC's algorithms flag suspiciously round numbers. Keep it real.

Record Keeping: The One Thing That Determines If You Keep Your Deductions

Here's the reality: If you can't prove it, you can't claim it—even if it was genuinely for business.

Minimum Records You Must Keep:

For ALL expenses:

• Date of purchase
• Supplier name
• What was purchased
• Amount paid
• Business purpose (add a note!)

How long to keep them: 5 years after the 31 January submission deadline (so 6 tax years total).

My Recommended System:

Option 1: Software (Best)

Use accounting software like:

• Xero
• QuickBooks
• FreeAgent
• Sage

Why? They:

• Snap photos of receipts
• Categorise automatically
• Calculate totals
• Generate reports for tax returns

Cost: £10-30/month
Time saved: 5-10 hours per year
Worth it? Absolutely.

Option 2: Spreadsheet (Budget-Friendly)

Create a simple spreadsheet with:
Date | Supplier | Category | Net Amount | VAT | Gross | Notes

Store receipts in a folder (physical or digital).

Option 3: Envelope System (Minimum Viable)

Keep a physical envelope per month with all receipts and bank statements. Not sophisticated, but it works if you're disciplined.

Common Myths I'm Constantly Debunking

Myth #1: "I Can Claim £X Because My Friend Does"

Your friend's situation isn't yours. Their accountant might be aggressive (or wrong). Copy at your own risk.

Myth #2: "Small Expenses Aren't Worth Tracking"

£5 here, £10 there adds up. Over a year, those "small" expenses can total £500-£1,000. At 20-40% tax, that's £100-£400 saved.

Myth #3: "If I Don't Have a Receipt, I Can't Claim"

Receipts are best, but bank statements, credit card statements, invoices, or other evidence can work—especially for recurring expenses like software subscriptions.

Myth #4: "HMRC Will Never Check Small Businesses"

HMRC uses risk-based selection. Random checks happen. Be honest and accurate.

Myth #5: "More Expenses = More Tax Saved, So Claim Everything"

False logic. You need to spend money to save tax on it. Don't buy things you don't need just for a tax deduction.

Example: Spending £1,000 to save £200-£400 in tax means you're still £600-£800 out of pocket.

Your Action Plan: What to Do Right Now

This Week:

• ☐ Set up expense tracking (software, spreadsheet, or envelope system)
• ☐ Review the last 3 months of bank statements for missed expenses
• ☐ Start a mileage log

This Month:

• ☐ Calculate your home office claim (simplified or actual cost)
• ☐ Review phone and internet bills for business proportion
• ☐ Audit professional subscriptions and memberships

This Tax Year:

• ☐ Set calendar reminders (monthly mileage, quarterly receipts, annual review)
• ☐ Consider accounting software (try free trials)
• ☐ Book accountant consultation for grey-area expenses

The Bottom Line: Stop Leaving Money on the Table

The difference between a £500 accountant fee and a £200 accountant fee isn't just the price—it's the £2,000 in missed deductions the cheaper accountant didn't spot.

As someone who reviews other accountants' work regularly, I see missed claims constantly:

• Home office expenses not claimed
• Mileage records abandoned mid-year
• Training courses paid for but not claimed
• Phone bills with zero business allocation

Each of these represents real money left with HMRC.

The expenses I've covered in this guide are just the frequently asked questions. Every business is different, and your specific situation might have other allowable expenses I haven't covered.

Top 5 "Fight For These" Expenses

1. Home Office Costs

Even modest claims save £200-500 annually. Use simplified expenses to avoid hassle.

2. Mileage

Track diligently. 10,000 business miles = £4,500 claim = £900-£1,800 tax saved.

3. Professional Development

Courses and memberships easily add up to £500-£2,000. Claim them.

4. Technology and Software

Cloud services, subscriptions, equipment upgrades. Modern businesses spend £1,000-£5,000 here annually.

5. Phone and Internet

Simple 50-70% apportionment can claim £300-£600 per year.

Need Help with Your Business Expenses?

We help UK businesses and sole traders maximise their allowable expenses while staying fully compliant with HMRC.

What we do differently:

• ✅ Proactive expense reviews (not just data entry)
• ✅ Industry-specific expense knowledge
• ✅ Software setup and training included
• ✅ Fixed monthly fees (no surprise bills)
• ✅ Direct access to qualified accountants

Contact us today to review your expenses and identify missed deductions.

Further Reading

Official HMRC Guidance:

• Expenses if you're self-employed (GOV.UK)
• Simplified expenses for self-employed (GOV.UK)
• Capital allowances (GOV.UK)