Small business expenses: what can I claim?

Being a small business owner comes with many challenges. Whether you are a sole trader or a limited company director operating in the North East, managing finances can be time-consuming and stressful. Many business owners leave money on the table simply because they are unsure what they can and cannot write off as business expenses.  

In fact, nearly £250 million worth of expenses with individual values of £10 or less are being unclaimed by UK micro-business owners every year. When software subscriptions, parking fees, small stationery purchases, and minor postage costs aren’t claimed, hundreds (if not thousands) of pounds in potential tax relief disappear. 

We work with sole traders, freelancers, and limited companies throughout Newcastle, Gateshead, and the wider North East region. In this blog post, we share our expertise surrounding allowable costs, helping you to avoid common pitfalls, remain compliant, and keep as much money in your business as possible. 

What are business expenses? 

To put it simply, to write off a business purchase to lower your taxes, you must buy it strictly for work, with zero personal use mixed in. 

When you calculate your taxable profit, you subtract your allowable expenses from your total turnover (revenue). You only pay tax on what is left over. If you spend money solely to generate income or keep your operations running smoothly, that cost generally qualifies. 

However, personal expenditure (no matter how convenient or tied to your lifestyle) cannot ordinarily be claimed.  

Does your business structure affect what you can claim? 

Yes. A common misconception is the belief that sole traders and limited companies follow the same rules. Here are the differences:

• As a sole trader, you and your business are legally the same entity. You record your income and expenses on your annual Self-Assessment tax return. While the wholly and exclusively rule applies, how you draw money from the business differs entirely from a company structure (you take money rather than earn a salary). 

• A limited company is a legal entity and any expenses claimed are incurred by the company itself. If a director pays for a business item out of their own pocket, the company can reimburse them, provided there is a clear receipt and proper bookkeeping trail. Directors typically draw a mix of a PAYE salary and dividends. Dividends are a distribution of profits, not an allowable business expense.  

What can I claim as a business expense in the UK?

To make sense of what you can put through your accounts, it helps to break down common business expenses by category: 

• Office costs & premises: Stationery, printing, postage, phone bills, internet service, heating, lighting, business rates, and rent for commercial spaces
• Travel & vehicles: Fuel, train and bus fares, parking fees, hotel accommodation, and overnight subsistence for business trips. Ordinary commuting (travel from home to your regular permanent workplace) is never allowed 

• Staff & subcontractors: Wages, employer National Insurance contributions, pension contributions, and payments made to legitimate independent subcontractors 

• Insurance & professional fees: Public liability insurance, professional indemnity insurance, business vehicle insurance, and fees paid to accountants, solicitors, or surveyors for business-related matters. (Note: Accountancy fees for preparing your actual Self Assessment return are sometimes treated with specific rules, but commercial advisory and bookkeeping fees generally qualify)

• Marketing & advertising: Website hosting, domain renewals, online ads, printed flyers, and trade directory listings 

• Training & subscriptions: Industry-specific training courses that update or maintain your existing professional skills, along with subscriptions to approved trade bodies 

• Stock & raw materials: Goods bought specifically for resale, raw materials, and direct production costs  

What business expenses are not 100% deductible? 

Many legitimate purchases, especially for small business owners, can be blurred between professional and personal life. When an item has a dual purpose, you cannot claim the full amount, you can only claim the identifiable business proportion. Below are some examples of what to do when there is an overlap: 

Utilities 

If you run your freelance design business from a spare bedroom in your home, you cannot claim your entire household utility bill. Instead, you can calculate a reasonable apportionment based on the number of rooms you use and the hours worked, or use HMRC’s simplified expenses if you are self-employed.  

Mobile phone usage  

If your mobile phone contract costs £50 a month, but 40% of your calls and data usage are entirely personal, you can only claim the 60% business element as a tax-deductible expense. Failing to split mixed-use expenses can result in compliance checks.  

Expenses you usually cannot claim

Knowing what to omit is just as important as knowing what to claim. HMRC strictly bars certain categories from reducing your taxable profit: 

• Everyday clothing: Standard clothing, suits, or casual wear cannot be claimed, even if you only wear them while working (unless they qualify as a specialised uniform, safety gear, or theatrical costume)

• Client entertainment: Taking clients, suppliers, or prospective customers out for meals, drinks, golf days, or hospitality events is generally not allowable under UK tax rules, even if there is a clear commercial motive to win business 

• Fines and penalties: Parking fines, driving penalties, and late-filing penalties issued by HMRC or regulatory bodies are never tax-deductible

• Dividends: Distributing profits via dividends to shareholders or directors is a financial allocation of profit after tax, not a business expense 

Capital expenditure and allowances 

Not every item you buy for your business is treated as an everyday running cost. Larger assets with long-term value (such as commercial machinery, computer hardware, office furniture, or business vehicles) fall under capital expenditure rather than standard revenue expenses.  

For instance, if your North East business invests in heavy workshop equipment, new IT servers, or a delivery van to scale operations, you cannot deduct the total purchase price as a basic day-to-day utility bill. Instead, these major assets are claimed through the UK’s capital allowances framework.   

For the vast majority of equipment purchases, the Annual Investment Allowance (AIA) allows businesses to write off 100% of the cost against taxable profits in the year of purchase, up to the permanent £1 million limit. This cuts your Corporation Tax or Self Assessment bill and can give your cash flow a boost. 

Vehicle rules require a strategic approach. Commercial vans and zero-emission electric vehicles often qualify for generous first-year tax breaks, whereas standard fuel cars with higher carbon emissions are subject to specific asset pooling rules.  

If capital expenditures exceed annual thresholds, or if you hold assets that do not qualify for immediate write-offs, the remaining balances fall into capital allowance pools. Under current HMRC guidelines, main pool assets (such as unallocated equipment) use Writing Down Allowances (WDAs) at a rate of 14% per year on a reducing-balance basis, while special-rate assets (like integral building features) use 6%. Managing these percentages and timing your purchases around your accounting year-end can help you maximise tax relief. 

Because business owners are naturally concerned about paying more tax than they need to, having a strategic approach to capital allowances has never been more important. Laura Walker, Accountant at One Two One Accounts, explains how this fits into a broader strategy: 

“Maximising tax relief is something I have front of mind when I review a corporation tax return. I am not just thinking about the deadline, I’m also looking for opportunities to help businesses retain profit so they can reinvest this back into growth. I help clients make the most of capital allowances and claiming for equipment and machinery, as well as making sure they are benefiting from Research & Development (R&D) tax relief where possible.” 

Keeping accurate records 

With the ongoing rollout of Making Tax Digital (MTD), accurate record-keeping is a strict legal requirement for business owners and sole traders. 

If you are a sole trader with a qualifying income over £50,000, MTD for Income Tax is now live (having rolled out on 6 April 2026), with lower thresholds following in subsequent years. This means paper receipts and manual spreadsheets no longer suffice. Instead, HMRC mandates the use of MTD-compatible accounting software to digitally record income and expenses and submit regular updates. 

Here are some tips on how to safely claim business expenses without fear of a compliance challenge: 

1. Keep a digital copy of all purchase receipts, invoices, till slips, and bank statements 
2. Never mix personal spending with your business bank account 
3. Maintain a detailed log of vehicle mileage (date, purpose of trip, start and end locations, total miles) 
4. Keep records for at least 5 years after the 31st January submission deadline (or 6 years for limited companies) 

What triggers an HMRC investigation?

HMRC uses sophisticated risk-profiling software and random spot-checks to monitor tax returns. Certain behaviours and irregularities can trigger a closer look at your business expenses. These include: 

• If your claimed expenses spike dramatically compared to your industry average or turnover 

• Claiming flat-rate allowances while simultaneously deducting itemised costs for the same category  

• Assuming that all transactions passing through a business debit card are an allowable expense 

• Missing receipts and logs for mixed-use assets or vague descriptions for larger write-offs  

Keeping transparent records and filing correctly protects your business from potential scrutiny from HMRC and financial penalties.  

How One Two One Accounts can help 

At One Two One Accounts, we help small businesses, sole traders, and limited company directors across the North East of England and beyond take control of their finances. 

Our team can assist you by reviewing your historical expenditure to make sure you’re not missing out on legitimate claims, managing your bookkeeping processes, categorising complex and mixed-use expenses, and taking care of your Self-Assessment tax returns, annual accounts, and corporation tax calculations. Having the right accountant can make all the difference. 

As our Founder and Director, Jamie McDonald, notes: 

“Whether you’re navigating complex business expenses, staying compliant with HMRC, or looking to scale your operations across the North East, our team is here to provide friendly support.” 

Ready to claim every allowable expense you are entitled to? Get in touch with the friendly team at One Two One Accounts today to see how we can boost your business accounting.