Overview
Allowable expenses are costs that are essential to running your business and can be deducted from your taxable income to reduce how much income tax you pay.
For example, if your business made £50k over the current tax year, and you spent £8,000 on allowable expenses, you wouldn’t have to pay tax on the entire £50k. You’d only pay tax on £42k, known as your taxable profit.
Most small businesses can claim allowable expenses, but there are a few scenarios where it might not apply. For example, you can’t claim allowable expenses if you use the £1,000 tax-free trading allowance.
If an expense is not used entirely for business purposes, then it is a disallowable expense. You can’t claim a disallowable expense as a deduction to reduce your taxable income.
For more information on allowable expenses, check the GOV.UK website.
What counts as an allowable expense?
Only certain costs can be claimed as allowable expenses, such as:
Office equipment, for example stationary and phone bills
Business property, such as utility bills, insurance and rent. Costs on buying property aren’t considered allowable expenses
Travel, for example, fuel, parking, public transport tickets, vehicle insurance. But this doesn’t include travel to and from work
Staff costs, for example, wages, training, bonuses and pensions
Clothing, such as uniform or protective clothing
Legal and financial costs, for example, bank charges, interest on business loans and hiring financial specialists such as solicitors.
Marketing, such as printed adverts and website fees
Items that you only buy to sell, such as raw materials or merchandise
How to claim allowable expenses
You can claim allowable expenses through your annual Self Assessment tax return.
Although you don’t need to submit proof of your expenses to HMRC to claim allowable expenses, HMRC may ask about these, so it’s important to keep accurate records of your expenses throughout the year.
Expense type | Allowable | Disallowable |
|---|---|---|
Business | Travel to a temporary site or a hotel stay for a specific client pitch. | Your daily commute to your "fixed" workplace or any parking fines. |
Clothing | Branded uniforms or protective gear you only wear for work. | "Smart" office wear like suits or shoes that you could wear elsewhere. |
Food & entertainment | Business-related meals while traveling overnight for work. | Client entertaining (hospitality) or your everyday "desk lunch". |
Your home | A fair proportion of your heating/lighting for a dedicated workspace. | Your full mortgage payment or DIY projects for personal living areas. |
Legal & financial | Business bank charges, insurance, and professional fees (like an accountant). | Personal legal fees or fines (like speeding or tax penalties). |
Marketing | Online ads, website hosting, and flyers. | Donations to personal causes or ads for non-business projects. |
Stock & merchandise | Raw materials or goods to resell. | Items you bought purely for personal use. |
Working from home? You can still claim
If your home is also your office, you can claim back a portion of your household running costs. You've got two ways to do it:
Choosing between flat rate and actual costs
The simplified flat rate: This is a fixed monthly amount based on your working hours. It's quick, easy, and saves you from hunting down every single utility bill.
Calculating actual costs: This involves working out the exact percentage of your home used for business. For example, if you use one room in a five-room house solely as an office, you could claim 20% of your eligible bills.
What records should you keep?
To keep things audit-ready for HMRC, you'll want to keep these tucked away safely:
Invoices: For every business purchase you make.
Receipts: Digital photos or paper copies - whatever works for you.
Bank statements: To give a clear picture of your business cash flow.
Mileage logs: Essential if you're claiming for travel.
How do I actually claim these expenses?
You claim your allowable expenses when you file your annual Self Assessment tax return. You don’t need to send your receipts or invoices to HMRC with your return, but you do need to keep them safe and accurate throughout the year in case they ever ask to see them. That’s exactly why we emphasise good record-keeping - it makes that final tax return process much faster and gives you total peace of mind.
How to make tracking easy
Let's be honest: spreadsheets can be a bit of a headache and it's easy to lose track. With Making Tax Digital (MTD) now in the mix, keeping digital records isn't just a good idea - it's essential for staying on top of your game.
Feel confident about your taxes
You don't need to juggle multiple subscriptions. When you open a Mettle business account, you get FreeAgent accounting software included at no extra cost.
*To get FreeAgent included, you must make at least one transaction a month from your Mettle account. If you don’t make one transaction a month, or if your Mettle account is closed and you continue to use FreeAgent then the FreeAgent fees will apply. Optional add-ons may be chargeable.
It's a smart, automated solution that works behind the scenes. Just snap a receipt or categorise a payment in the Mettle app, and it syncs straight to your books. FreeAgent is HMRC-recognised and MTD-compliant, so you can track your tax liabilities in real time and submit returns with total peace of mind. Let's take the weight of admin off your shoulders.
Go digital: Say goodbye to paper receipts and hello to digital records.
Keep it separate: Using a dedicated business account makes it much easier to spot what's what.
Ask for help: If you're ever unsure about a claim, a qualified accountant is always better than a best guess.
Is there a better way to stay compliant?
Absolutely. By linking your business account directly to HMRC-recognised software, you can put your admin on autopilot. With Mettle and FreeAgent working together, your records stay synced and up to date without the fuss.
Sound good? Apply now
Mettle is free and easy to open. Available on iOS and Android.
