One of the questions I get asked most is:
“What can I actually put through the business?”
The starting point is simple enough. For tax, a business expense normally needs to be incurred wholly and exclusively for the purposes of the trade. For sole traders and partnerships that sits in s34 ITTOIA 2005. For companies it sits in s54 CTA 2009.
But that is only part of the story.
If you run your business through a limited company, there is a second layer to think about: the director or employee tax position. Just because the company pays for something does not automatically mean there is no personal tax consequence. In some cases the company may get a deduction, but the director still ends up with a benefit in kind unless a specific exemption applies.
So, what tends to be allowable, and what tends to trip people up?
Travel Costs
Travel is one of the most common claims, and one of the most misunderstood.
Travel to visit clients, attend meetings, conferences or temporary work locations can often be allowable. But regular travel from home to your normal office or other permanent workplace is usually just ordinary commuting, and that is not tax-deductible under the normal rules.
So yes, business travel can be fine. Daily commuting dressed up as business travel usually is not.
Using Your Own Car
If you use your own personal car for business journeys, the simplest route is usually to claim business mileage using HMRC’s approved rates. Those rates are designed to cover the wider running costs of the vehicle, so you cannot then also claim separate costs such as fuel, insurance, repairs, MOTs or road tax on top for the same car.
Good records matter here. Keep the date, destination, purpose of journey and mileage.
Cars Bought By the Company
If the company buys the car, the tax treatment changes.
The company may get tax relief, usually through the capital allowances rules rather than as an ordinary day-to-day expense. The amount of relief depends on the type of car and its CO2 emissions. New zero-emission cars can currently qualify for a 100% first-year allowance if the conditions are met.
But there is usually a trade-off: if the director or employee can use that car privately, that can create a benefit in kind and sometimes a fuel benefit too. VAT is another trap. The common 50% VAT block is mainly relevant to many leased cars with private use; it is not a blanket rule for every business car.
Home Office Expenses
If you genuinely work from home, some homeworking costs can be relieved, but this is an area where people often get too casual.
Office furniture and equipment such as a desk, office chair, laptop, monitor or printer can often be justified where they are needed for the business. But decorative or mixed-use items need more care. The more an item looks like it belongs to your general home life rather than your business, the shakier the claim becomes.
Equipment and Tools
Laptops, computers, tablets, printers, tools, machinery and protective clothing are all common business costs. Just remember that larger purchases may be capital items, meaning tax relief is often given through capital allowances rather than by simply dropping the full cost into the profit and loss account as a normal overhead.
Mobile Phones
A useful one that many owners miss: one employer-provided mobile phone or SIM can be exempt for a director or employee, provided the contract is with the business, not the individual. That exemption can cover the handset, line rental and even private calls on that phone.
Entertaining: Where People Get Caught Out
This is where tax gets mean.
Buying a coffee or lunch for a client may feel like a perfectly normal business cost. Commercially, it probably is. Tax-wise, it is usually business entertaining, and for companies that is normally not deductible for corporation tax.
Staff entertaining is different. A staff social event can be allowable for the business, and there is a separate tax exemption for annual functions if the conditions are met, including the well-known £150 per head rule.
Expenses That are Usually Not Allowable
Some claims fail because they have an obvious private element.
Classic examples include:
- everyday clothing
- normal shoes
- haircuts and make-up
- gym memberships
- massages, facials and spa treatments
- umbrellas and other everyday personal items
The logic is usually the same: there is a duality of purpose. Even if the expense helps you at work, it also serves a personal purpose, which usually kills the claim. The classic case here is Mallalieu v Drummond, where even court clothing for a barrister was not deductible because it still served the ordinary human need for warmth and decency.
A Few More Unusual Examples
A few that are worth knowing:
- Trivial benefits can be tax-free if they meet the rules, but they are tightly defined and for close company directors there is an annual cap.
- Client lunches are usually disallowed entertaining.
- Staff parties can be fine if structured properly.
- Protective clothing is much easier to defend than normal businesswear.
Final Thought
The broad rule is easy to say and harder to apply:
Is the expense really for the business, and is there any private element or separate benefit to the owner, director or employee?
That is where most of the mistakes happen.
If the answer is obviously business and well documented, you are usually on safer ground. If it feels like a grey area, it probably is.
