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Posted: Thu 15th Oct 2026
Every business has costs. Rent, software, travel, insurance and marketing can quickly add up, particularly when you're running a business in London.
Some of those costs can be deducted from your income when your taxable profit is calculated. These are known as allowable expenses.
Understanding what you can claim can lower your tax bill and give you a clearer picture of what your business is really costing to run.
If you're self-employed, allowable expenses are business costs that you can deduct from your income when working out your taxable profit.
For example, if your turnover is £60,000 and you have £15,000 of allowable expenses, your taxable profit would usually be £45,000.
Your income tax calculation would then be based on that taxable profit, alongside any other relevant income and allowances.
Limited companies follow separate Corporation Tax rules.
Companies can generally deduct qualifying costs incurred for business purposes when calculating taxable profits.
HMRC describes the main test for many company revenue expenses as whether they were incurred "wholly and exclusively" for the purposes of the business.
Spending money doesn't automatically make something tax-deductible. Some expenses are specifically excluded and special rules apply to certain purchases, particularly equipment and other capital items.
For that reason, it's worth or speaking to an accountant if you're dealing with an unusual or significant cost.
Common allowable expenses for small businessesThe exact expenses you can claim will depend on what your business does. The following areas cover many of the costs small businesses encounter regularly.
If you rent business premises, expenses such as rent, business rates, utilities, property insurance, security and some repairs can usually qualify.
Office costs can also include:
Stationery.
Printing.
Postage.
Phone bills.
Internet services.
If you work from home, you may be able to claim part of your household costs. Sole traders can calculate the business proportion of costs such as heating, electricity, Council Tax, rent or mortgage interest.
HMRC also offers simplified expenses for eligible sole traders and partnerships.
If you work from home for at least 25 hours a month, you can use a monthly flat rate instead of calculating some of your actual household costs.
Phone and internet costs aren't included in the flat rate, so the relevant business proportion can be calculated separately.
Business travel can include train, bus, Tube, taxi and air fares, as well as accommodation and some meals during overnight business trips.
Vehicle costs such as fuel, insurance, repairs and parking may also qualify where they relate to business journeys. Sole traders can sometimes use HMRC's simplified mileage expenses instead.
Ordinary travel between your home and your regular workplace doesn't qualify as a self-employed business travel expense. Neither do fines or penalty charges.
Keep enough information to show why a journey was for business. Recording the date, destination and reason for the trip can save considerable detective work later.
If you employ people, qualifying costs can include:
Salaries.
Bonuses.
Employer pension contributions.
Employer National Insurance.
Agency fees and subcontractor costs.
Training can also qualify when it relates to the business.
Keep payroll and training records alongside your other accounting information so you can see your full staffing costs throughout the year.
You can generally claim advertising, website costs, mailshots and free samples where they are genuine business expenses.
This could cover expenses such as paid online advertising, website hosting or work a marketing supplier has carried out.
There are some easy traps here. Entertaining customers, suppliers or clients isn't generally an allowable expense for self-employed tax purposes. Most business gifts are also excluded.
Fees paid to accountants, solicitors, surveyors and other professionals can qualify when their work relates to your business.
Business insurance, bank charges and interest on qualifying business borrowing may also be deductible. The capital repayment of a loan isn't treated as an allowable expense.
Computers, equipment and software need a little more care because their tax treatment can depend on what you've bought and how you account for your business.
For sole traders using cash basis accounting, many items of equipment can be treated as allowable expenses.
Businesses using traditional accounting may need to claim capital allowances instead for equipment they expect to keep. Cars also have particular rules.
Subscriptions to software your business uses regularly can often qualify as ordinary business expenses.
Business insurance policies such as public liability or professional indemnity insurance can normally qualify.
You can also claim some subscriptions to professional organisations or trade bodies where membership relates to your business.
Personal memberships (including gym fees) don't qualify simply because you sometimes use them for networking or work.
Building a simple system for managing expensesGood expense management starts when you spend the money.
Use a separate business bank account wherever possible. Limited companies must keep company finances separate from those of their owners and directors. For sole traders, separation also makes bookkeeping considerably easier.
Decide how you'll record expenses. Accounting software can connect to your bank account and put transactions into categories. Many platforms also let you photograph receipts and attach them directly to individual transactions.
Set up categories that make sense for your business. This might include software, travel, marketing, professional fees and office costs. Use the same categories consistently.
Check your expenses regularly. A short bookkeeping session once a week or once a month is much easier than reconstructing a year's spending from bank statements.
HMRC asks that self-employed people keep records of business income and expenses. Supporting evidence can include receipts, invoices and bank statements.
You don't usually send these records with your tax return, but HMRC can ask to see them.
Sole traders generally need to retain their records for at least five years after the 31 January Self Assessment submission deadline for the relevant tax year.
Limited companies usually need to retain accounting records for six years from the end of the financial year they relate to.
Digital copies can make this easier. Give documents meaningful filenames and store them somewhere secure with a backup.
Plenty of business purchases also have a personal element.
You might use one mobile phone for work and personal calls, for example. Or you might drive the same car for customer visits and weekend trips.
You can generally claim only the qualifying business proportion. HMRC gives the example of a £200 phone bill where £70 relates to business calls. In that situation, £70 can be treated as the business expense.
The same principle makes some apparently obvious claims unsuitable.
Everyday clothes don't become an allowable expense because you wear them to meet clients. Uniforms, protective clothing and costumes used by performers can qualify.
One of the biggest problems is assuming that anything paid for through the business can be deducted from taxable profit.
Personal spending, customer entertaining, fines and various capital costs may be excluded or treated differently. Expenses with mixed personal and business use may need to be split.
The opposite problem is forgetting genuine expenses. Small recurring payments for software, postage, mileage or professional subscriptions can add up across a full year.
Leaving the bookkeeping until your tax return is due makes both mistakes more likely. Record expenses when they're fresh in your mind and keep the supporting documents alongside them.
Digital record-keeping has become particularly relevant for some sole traders.
Making Tax Digital for Income Tax began on 6 April 2026 for qualifying sole traders and landlords whose total qualifying income from self-employment and property was more than £50,000 in the 2024/2025 tax year.
The threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028.
Businesses covered by the rules must use compatible software to keep digital records of income and expenses and send quarterly updates to HMRC.
Even if you're currently below the threshold, keeping orderly digital records can make year-end accounts and tax returns easier to manage.
Allowable expenses affect your tax calculation, but your records can tell you much more than how much tax you owe.
Review them every few months.
Look at where your money is going and which costs have increased.
Check whether you're still using every subscription you're paying for.
Compare marketing spend with the enquiries or sales it generates.
You may find software you no longer need, supplier costs you can renegotiate or areas where increased investment makes commercial sense.
Claiming legitimate expenses can also leave more cash available in the business. You might use that money to replace equipment, improve your website, bring in specialist help or build a financial buffer.
Keep the tax rules in mind when you're planning significant spending, particularly for equipment, vehicles or costs that have both personal and business use.
For larger or less straightforward claims, an accountant or tax adviser can help you understand how the rules apply to your circumstances.
Accurate expense records give you a clearer view of what it costs to run your business. And that makes budgeting, tax planning and decisions about future spending much easier.
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