What Counts as a Business Expense
ExpensesMerranti

What Counts as a Business Expense? The Line Between Personal and Professional in 2025/26

One of the most common questions we get from both sole traders and company directors is:
“Can I claim this as a business expense?”

The answer isn’t always straightforward. With increased scrutiny from HMRC, frozen tax thresholds, and real pressure on cash flow, more business owners are keen to make sure they’re deducting everything they’re legally entitled to — but not stepping over the line into trouble.

In this article, we break down the rules around allowable business expenses in the 2025/26 tax year. We’ll explain how HMRC defines an expense, where the line between personal and professional lies, and how to keep your business tax-efficient — and compliant.

The golden rule: wholly and exclusively

HMRC’s core principle is that to be an allowable deduction against your business income, an expense must be incurred “wholly and exclusively for the purposes of the trade”.

That means:

  • The expense must be directly related to your business activity
  • There must be no dual purpose (e.g. personal benefit as well)
  • You must be able to support the claim with records or justification

If an expense has a dual purpose — for example, part-business and part-personal — it may be disallowed entirely, unless you can clearly apportion it.

What types of business can claim expenses?

Most trading businesses can claim allowable expenses against profits, including:

  • Sole traders
  • Partnerships
  • Limited companies

The rules differ slightly between individuals and companies, especially around capital items, cars, and benefits — but the principle is the same: only claim costs that are genuinely business-related.

What can you usually claim?

Here’s a list of common business expenses that are usually allowable in 2025/26:

  • Office costs: stationery, postage, printer ink, software subscriptions
  • Telephone and internet: business mobile contracts, share of broadband if working from home
  • Travel: mileage, train fares, accommodation for business trips
  • Staff costs: salaries, subcontractors, employer NI and pensions
  • Professional services: accountants, solicitors, consultants
  • Marketing: website costs, ads, design, printed materials
  • Training: courses related to your current business
  • Bank charges and finance: interest on business loans, bank fees
  • Business premises: rent, utilities, repairs (if not claiming simplified use of home)
  • Insurance: professional indemnity, public liability, employers’ liability
  • Tools and equipment: computers, phones, furniture, machinery

If you’re a company, you can also claim capital allowances on certain large purchases like vehicles, IT systems, or plant and machinery — which we covered in depth here.

What can’t you claim?

There are several types of expenditure that are not allowable, even if you argue they’re “partly” linked to the business.

These include:

  • Personal expenses: clothes, personal travel, meals for yourself

  • Home rent or mortgage: unless you apportion it as part of a use-of-home claim
  • Client entertainment: taking clients for meals or drinks is not deductible for tax purposes
  • Fines and penalties: including HMRC penalties or speeding tickets in a company van
  • Gifts to clients or suppliers: unless under £50, not food/drink/tobacco, and branded
  • Political donations or non-business-related charity donations
  • Training for a new career: e.g. retraining as a therapist when you’re currently an engineer

The key issue is whether the expense is incurred solely for business purposes. If there’s any personal benefit, HMRC may disallow it entirely.

What about business use of personal assets?

A very common grey area is where you use a personal item for business — such as your home, car, mobile phone, or internet.

These can often be partially claimed, but only if:

  • You can demonstrate a reasonable business proportion, and
  • You apply the same logic consistently over time

Examples:

  • You work from home one room, five days a week — you may claim a proportion of your utility bills, or use HMRC’s flat rate simplified use-of-home allowance
  • You use your personal mobile 70% for business — you could claim 70% of the cost
  • You drive your own car for business purposes — you may claim mileage allowance (45p per mile for the first 10,000 miles)

It’s important to avoid estimating or guessing — HMRC may challenge vague or round-number claims. Keep records, diaries, or logs where possible.

Sole trader vs limited company: key differences

For sole traders, most business expenses are claimed directly against your income, and you can deduct relevant costs in full or proportionally depending on usage.

For limited companies, it’s slightly different:

  • The company must pay for the expense directly
  • If you pay personally, you can reclaim it from the company (with a record)
  • If the company pays for something that has personal benefit — like a gym membership — it may trigger a benefit in kind and lead to extra tax via a P11D

Some expenses, like phones or trivial benefits, are more tax-efficient when structured through the company. Others, like private healthcare, may carry a personal tax cost.

We can help you identify which expenses are best run through your company and which are better kept personal.

What about meals and clothing?

These are two of the most misunderstood areas.

Meals:
You can claim meals while travelling for business — for example, lunch during a client site visit, or dinner while staying overnight.
You cannot claim your regular meals while working from home or commuting.

Clothing:
You can only claim clothing that is:

  • Protective (e.g. safety boots, high-vis jackets)
  • Branded with your logo
  • A uniform specifically required for work

Ordinary clothes, even if only worn for business, are not allowable — this includes suits, smart workwear, or even plain black T-shirts.

Record keeping: the evidence matters

In the event of a tax enquiry, HMRC will want to see:

  • Receipts and invoices
  • Clear descriptions of what was purchased
  • Date and amount
  • Why it was needed for the business

If you don’t have a receipt, or the explanation is unclear, your claim may be denied.

Using cloud accounting tools like Xero, QuickBooks, or Dext can make this process much easier — and protect you in the event of an HMRC enquiry.

Final thoughts

Understanding what qualifies as a business expense in 2025/26 isn’t just about saving tax — it’s about staying compliant and confident in your bookkeeping.

Claiming too little means you could be overpaying tax.
Claiming too much — or the wrong things — risks penalties, interest, and a possible enquiry.

If you’re unsure about a particular expense, or want us to review your current claims before the tax year ends, get in touch. At Merranti, we help sole traders and company directors draw a clear line between personal and business, so you keep more of what’s yours — without giving HMRC a reason to knock.

Not sure if your expenses stack up?
Book an Expense Review with Merranti Accounting and get clarity before your next return.

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