Chapter 9: Business Expenses -- What You Can and Can't Claim

Tax year notice: This guide uses 2025/26 tax year figures (6 April 2025 -- 5 April 2026). Check gov.uk for the latest rates.

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The golden rule

Every expense claim comes down to one test:

Is it wholly and exclusively for the purpose of your business?

If yes, you can deduct it from your income before calculating tax. If no, you can't. If it's partly personal and partly business, you can usually claim the business portion -- but you must be able to justify the split.

This rule is simple in principle and messy in practice. Can you claim for lunch? What about a new laptop you also use for Netflix? What about the room in your house you work from? Let's go through the common ones.

What you can claim

Stock and materials

If you buy items to sell or materials to make things, this is your cost of goods sold. It's your most straightforward expense.

Sam buys vintage clothes to resell on Unbought. The purchase price of those clothes is an allowable expense. So are garment bags, labels, and packaging materials.

Steve buys compost, seeds, and plants for clients. These are materials costs.

Home office

If you work from home, you can claim a portion of your household costs. There are two approaches:

Flat rate (simpler): HMRC allows a fixed amount based on hours worked from home per month:

Hours worked from home per month	Flat rate
25--50 hours	10/month
51--100 hours	18/month
101+ hours	26/month

Actual costs (potentially more): Calculate the proportion of your home used for business. If you use 1 room out of 4 for 40% of the time, you can claim 10% (1/4 x 40%) of your rent, council tax, utilities, and broadband.

The flat rate is easier and requires no calculation. Actual costs are better if you have a dedicated office and high housing costs. You can't switch between methods during a tax year.

Key point: If you work from home occasionally (replying to emails in the evening), the flat rate is fine. If you have a dedicated room that's genuinely your office, actual costs will usually give a larger deduction.

Vehicle expenses

Two options:

Mileage allowance (simpler): Claim a flat rate per business mile driven:

Miles	Rate
First 10,000 miles per tax year	45p per mile
Above 10,000 miles	25p per mile

This covers fuel, insurance, servicing, depreciation -- everything. Keep a mileage log: date, destination, purpose, miles.

Actual costs (potentially more for high-mileage users): Claim the actual costs of running your vehicle (fuel, insurance, servicing, road tax, MOT, finance payments) and multiply by the business-use percentage. You'll need to track total miles and business miles.

Steve drives 12,000 business miles a year. Using mileage allowance: (10,000 x 45p) + (2,000 x 25p) = 5,000. Using actual costs might give more or less depending on the vehicle. The mileage allowance is almost always better for vans and older vehicles.

Warning: Commuting (home to your regular place of work) is NOT a business trip. But travelling to a client's site, a one-off meeting, or a temporary workplace IS. Steve driving to clients' gardens is business travel. Steve driving to his own workshop every day would be commuting.

Professional services

• Accountant fees: fully claimable
• Legal fees related to the business: claimable
• Business insurance: claimable
• Professional subscriptions or memberships: claimable if required for your trade

Advertising and marketing

• Website hosting and domain names
• Online advertising (Google Ads, social media ads)
• Business cards and flyers
• Marketplace listing fees (Unbought fees for Sam)
• Photography for product listings

Equipment and tools

Items you buy for the business that you'll use for more than a year (laptop, tools, furniture) are capital expenditure. These are handled differently from regular expenses:

Annual Investment Allowance (AIA): You can deduct the full cost of most capital items up to 1,000,000 per year. For sole traders, this effectively means you can claim the full cost of equipment in the year you buy it.

Steve buys a ride-on mower for 3,500. He claims the full 3,500 as a capital allowance in that tax year.

Sam buys a 900 camera for product photography. Full cost claimed that year.

Mixed-use items: If you buy a 1,000 laptop and use it 60% for business and 40% personal, you can claim 600.

Phone and internet

If you use your personal phone and broadband for business, claim the business proportion. A common approach: estimate the percentage of business use (e.g., 30% of your phone bill) and claim that portion. Keep it reasonable and consistent.

A separate business phone line is fully claimable.

Training

Training that updates or maintains skills for your existing business is claimable. Training to enter a new field or gain qualifications you didn't have before is generally not.

Steve attending a tree surgery course to add services: claimable. Sam attending a marketing degree: not claimable (new qualification). Sam attending a one-day workshop on Unbought selling strategies: claimable.

What you can't claim

Expense	Why not
Clothing (unless protective or uniform)	"Looking professional" isn't enough. Steve's steel-toe boots: yes. Sam's outfit for a networking event: no.
Entertainment	Client dinners, hospitality, event tickets -- almost never allowable. This is one of HMRC's strictest rules.
Fines and penalties	Parking tickets, HMRC penalties, speeding fines -- never claimable
Personal drawings	Money you take out of the business for personal use isn't an expense -- it's your pay
Commuting	Travel from home to your regular place of work
Your own labour	You can't charge the business for your own time

The lunch test: Can you claim for lunch while working? Almost never. HMRC's view: you'd eat lunch anyway, so it's a personal cost. Exception: a meal during an overnight business trip away from home, or a subsistence meal while travelling to a temporary workplace far from your normal base.

Mixed-use: Getting the split right

Many expenses are partly business, partly personal. HMRC accepts a reasonable apportionment:

Expense	How to split
Phone bill	Percentage of business calls/data usage
Broadband	Percentage of business hours vs total hours
Laptop/computer	Percentage of business use
Car costs	Business miles vs total miles
Home costs	Room proportion x time proportion

"Reasonable" is the key word. HMRC won't argue with 30% business use on a phone. They might argue with 90% if you can't demonstrate it. Be honest and consistent.

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Real Scenario: Sam's expenses breakdown

Sam's Unbought business for the 2025/26 tax year:

Expense category	Amount	Notes
Cost of goods sold (stock)	2,100	Vintage and pre-loved clothes purchased
Unbought fees	340	Platform commission and listing fees
Shipping and postage	420	Royal Mail and courier costs
Packaging	180	Garment bags, tissue paper, thank-you cards
Photography	0	Uses phone camera (phone costs claimed below)
Phone (30% business use)	108	30/month x 12 x 30%
Home office (flat rate)	120	~30 hours/month = 10/month x 12
Total expenses	3,268

Sam's income was 6,200 this year (the business grew). Profit: 6,200 - 3,268 = 2,932. Without claiming expenses, Sam would pay tax on 6,200. With expenses, Sam pays tax on 2,932 -- saving approximately 930 in tax and NI.

Real Scenario: Steve's expenses breakdown

Steve's gardening business (full-time from October):

Expense category	Amount	Notes
Materials (compost, plants, seeds)	2,400	Bought for client projects
Fuel (mileage: 8,000 miles at 45p)	3,600	Business travel to client sites
Tools and equipment	1,800	Replacement tools, strimmer parts, blades
Van insurance	1,200	Fully business use
Phone (50% business use)	180	30/month x 12 x 50%
Protective clothing	240	Steel-toe boots, waterproofs, gloves
Waste disposal (dump fees)	480	Green waste disposal charges
Public liability insurance	280	Required for working at clients' properties
Accountant	300	Year-end accounts preparation
Total expenses	10,480

Steve's income was 26,000. Profit: 26,000 - 10,480 = 15,520. The expenses saved Steve approximately 2,935 in tax and NI. Without claiming, he'd have paid tax on the full 26,000.

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Smart Expense Features in Blankitt

Subscription detection

Blankitt analyses your bank feed to spot recurring payments automatically. Every regular outgoing gets flagged and classified into one of two types:

Subscriptions -- payments you can cancel anytime (streaming services, software tools, gym memberships). These are the ones that silently drain your account. Blankitt groups them together so you can see the total monthly cost at a glance and decide which ones are still worth paying for.

Regular bills -- payments you can't easily avoid (rent, council tax, energy, broadband). These are committed costs. Knowing the exact total helps you budget realistically -- you can't cut these without changing your living situation.

The detection works by pattern-matching amounts, frequencies, and merchant names across your transaction history. If a payment appears monthly (or weekly, or annually) from the same source, it gets flagged. You confirm or dismiss each one.

Automatic categorisation

Every expense is matched to an HMRC-recognised category for your tax return. When a transaction comes in from your bank feed, Blankitt suggests a category based on the merchant name and your previous categorisations.

Over time, the suggestions get better. If you always categorise Costa Coffee as "subsistence" (when travelling) or "not claimable" (when not), Blankitt learns the pattern. You still approve each one -- it's your tax return -- but the heavy lifting is done for you.

For sole traders and limited companies, the categories map directly to the Self Assessment or CT600 boxes. Less rummaging through receipts in January.

Mileage tracking

Log business journeys with distance and purpose. Enter the start point, end point, and reason for the trip. Blankitt calculates the distance and applies the correct HMRC mileage rate automatically:

• First 10,000 miles in the tax year: 45p per mile
• After 10,000 miles: 25p per mile

The running total updates as you log journeys. At year end, you have a complete mileage log ready for your tax return -- date, destination, purpose, miles, and allowance claimed. No spreadsheet required.

Key point: The mileage log is one of the most commonly requested records in an HMRC enquiry. Having it built automatically from your journey entries is significantly better than reconstructing it from memory in January.

Receipt capture

Photograph a receipt with your phone and attach it to the matching expense. The image is stored alongside the transaction, so when your accountant asks "what was that 47.50 from Screwfix?", you have the answer instantly.

Receipts fade. Paper gets lost. A photo taken on the day of purchase and attached to the right transaction is the simplest insurance against lost records. HMRC requires you to keep records for at least 5 years after the 31 January submission deadline -- digital images count.

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Checklist: Monthly expense capture routine

• Photograph every receipt on the day of purchase (phone > cloud)
• Categorise expenses weekly in your accounting software
• Update your mileage log after every business journey
• Record the business percentage for any mixed-use items
• Keep notes on why unusual expenses are business-related
• Review expense categories monthly -- are you missing any legitimate claims?

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Jargon Buster

Term	Plain English
Wholly and exclusively	HMRC's test for whether an expense is claimable -- it must be entirely for business purposes
Allowable expenses	Business costs that you can deduct from your income before calculating tax
Cost of goods sold (COGS)	What you paid for the items you sell -- the direct cost of your product
Capital expenditure	Spending on items that last more than a year (equipment, vehicles, furniture) -- treated differently from regular expenses
Annual Investment Allowance (AIA)	The amount of capital expenditure you can deduct in full in one year (currently up to 1,000,000)
Mileage allowance	A flat rate per mile (45p/25p) that covers all vehicle costs for business journeys
Flat rate	A simplified fixed amount HMRC allows instead of calculating actual costs (used for home office and vehicle expenses)
Apportionment	Splitting a mixed-use expense into business and personal portions
Subsistence	The cost of food and drink while travelling on business away from your normal base