Ep06 - Understanding Business Expenses for Tax

Business expenses are one of the most common areas of confusion for directors. In this episode, Nicola unpacks what you can and can’t claim through your Limited company, and why getting it right matters for both tax efficiency and peace of mind.

You’ll hear about everyday costs that are usually fine to include, the grey areas like travel and meals, and the hidden gems such as trivial benefits and staff event allowances. Nicola also shares practical tips on keeping good records, avoiding common mistakes, and making sure you stay on the right side of HMRC.

If expenses have ever felt overwhelming or unclear, this episode will help you cut through the noise and claim with confidence.

What You’ll Learn:

• The everyday expenses that are typically allowable.
• The difference between valid costs, grey areas, and non-claimable items.
• How to keep clear records and apply the “wholly and exclusively” rule.

Resources & Links:

I’ve written a book that expands on the topics in this podcast and comes with a companion guide. Learn more at www.thenumbersquarter.co.uk/book.

About the Podcast:

The Balanced Business – The Director’s Handbook is a 12‑part podcast series hosted by Bedford‑based Chartered Accountant Nicola Hageman. Designed for UK small business owners and company directors, the podcast explains how to run a Limited company with more clarity, confidence, and control. Each episode covers a practical topic – from choosing your business structure and staying compliant with HMRC to budgeting, VAT, systems, and delegating. The series is based on Nicola’s book and companion guide, available at www.thenumbersquarter.co.uk/book.

About Nicola and The Numbers Quarter:

Nicola Hageman is the founder of The Numbers Quarter, a friendly and approachable accountancy practice based in Bedford. She specialises in helping owner‑managed businesses grow their profits, plan for the future, and reduce stress. Nicola is known for her plain‑speaking advice and passion for aligning personal and business goals.

Connect with Nicola:

• Instagram – www.instagram.com/nicola_hageman
• LinkedIn – www.linkedin.com/in/nicolahageman
• Website – www.thenumbersquarter.co.uk

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Transcript

0:14

Hi, and welcome back to the Balanced Business Podcast. I'm Nicola Hageman from The Numbers Quarter, and this is episode six of the Director's Handbook. Today we are going to talk about something that I get asked about all the time. What can I claim as a business expense? And honestly, it's a brilliant question because understanding this stuff can save you money, reduce your tax bill, and help you run a more efficient business. But if you're not sure what counts or you've been told different things by different people, it can feel a bit overwhelming and a bit scary too. You don't want to get these things wrong. So in this episode, I'm going to take you through the types of expenses you can claim, the ones you can't, and the gray areas in between. I'm gonna give you examples, explain the logic behind it, and hopefully help you feel a lot clearer by the end of it. So let's get into it. So let's start with the basics. Why do we even care about expenses? Well, when you run a limited company, you pay corporation tax on your profits and your profit is simply the money that the company brings in minus the business expenses it has going out. So the more valid expenses you can claim, the lower your taxable profit and the less tax that your company pays. But, and this is important. Not everything that you spend money on is allowed as a tax deductible expense. The expense has got to be wholly and exclusively for the purpose of the business. And that's HMRC key phrase. If it's partly for business and partly for personal things, then get a bit tricky. So let's start with some easy wins. These are the expenses that are usually fine to claim if they relate directly to your business. So office costs, think rent, utilities, business insurance, cleaning, internet, all the usual stuff that you need to run your workspace. If you rent an office or co-working space, that's claimable. If you have a phone contract, that's 100% for business, that's claimable too. Now, if you work from home, you can claim a portion of your household bills, but we're gonna talk about that in a bit. And then software and subscriptions, things like accounting software, CRM tools, scheduling apps, cloud storage, project management tools. These are all fine as long as they are for your business. If you're paying for something monthly that helps you run your business more efficiently, it's probably a valid expense. And then professional services. So accountants like me, legal advice consultants, IT support any third party services that you pay for to help run or improve your business can be claimed as an expense. Advertising and marketing. So this includes Facebook ads, Google ads, printing flyers, website design, hosting, logo design, branding, consultants, anything that promotes your business, Travel for business purposes. So train tickets to a client meeting. Hotel stays for a conference. Mileage if you use your personal car for work, these are all allowable as long as they are for a genuine business purpose. So things like commuting to and from your office isn't allowed, but if you are going, outta cycle to another office or to a client, these are all totally fine for business expenses. So keep your receipts and a clear record of where you went and why. And then training. Now, there's a catch here. If the training is to maintain or improve your existing skills, it's usually allowed. So if you're doing a refresher course or learning a new tool for your industry, then great, you can probably claim it. But if you're learning a completely new trade or skill, something that you didn't already use in your business, then HMRC sees this as personal development and won't allow it. Staff costs if you've got employees or even just pay yourself via payroll, the salaries, pensions, employers, national insurance and staff training or benefits can all be claimed. okay, working from home, what can you claim for this? Now, this is a big one, especially if you run your business from home. So you have two main options here. Option one, you can have the simplified flat rate. Now, HMRC allows you to claim a small flat rate each month. If you're working from home regularly, it's not a huge amount, but it's easy and doesn't require any calculations at the time of recording. It's six pounds a week. Now that's about 26 pounds a month. Not loads, but it adds up. Or you've got option two, claiming a share of your household bills. So another way that you can claim is by working out a fair share of your actual bills, things like heating, electricity, internet, and so on. You look at how much of your home is used for business and how much time you spend working there. So let's imagine you've got a five room house and one room is set up, is your office. That's about 20% of the space. And then think about how often you use it, say 40 hours a week. Now this is about a quarter of the hours in a week. You put those together and you've got a fair percentage of your household bills that you can claim on 6,000 pounds worth of bills. This works out just under 300 pounds for the year. Again, not huge, but definitely worth recording. The golden rule is this, it has to be fair, reasonable, and consistent, and keep your notes and records because HMRC will want to see how you've worked it out if they ever ask. And then using your car. So if you use your car for work, say driving to see clients or attending events, you can claim mileage. The standard rate at the moment is 45 p per mile for the first 10,000 miles, and then 25 p per mile after that. This covers fuel wear and tear insurance, everything.. Now don't try to claim fewer receipts on top of mileage. That's double counting. So if the car is owned by the business, then things get slightly more complicated with benefits and kind. So always check your accountant on that one. So what about food and entertainment? And this is where things get a bit gray and where people often get tripped up everyday. Lunch not allowed. If you pop out for a sandwich while you're working from home, that's seen as a personal expense. HMRC views it as something that you'd be doing anyway. You've gotta eat right. Travel meals, yes, probably. If you're traveling for business away from your normal base on a work trip, then your meals can be claimed. It's part of the cost of being away from your usual work environment, entertaining clients. Now be careful on this one, so you can record the cost of taking a client out for lunch or a coffee, but you usually can't deduct it for tax purposes, so it's not gonna reduce your corporation tax. You can still include it in your accounts, but don't expect a tax saving. Now before we move on, I quickly want to talk about trivial benefits and annual staff events because these are two little known ways you can give yourself or your team something extra without triggering a tax bill. So trivial benefits, what is a trivial benefit? This is a small perk your company can provide to an employee, and that includes you as a director without having to report it to HMRC or pay tax or National Insurance on it. So there are a few conditions. It has to cost less than 50 pounds per benefit. It can't be a cash or cash voucher, it can't be in return for work or performance based, and it mustn't be part of a contractual obligation. So think birthday flowers, a bottle of wine for Christmas, or a gift card for m and s. As long as it meets those rules, then it's fine. Now, here's the important bit for directors of close companies, which most small limited companies are, you can receive up to 300 pounds per tax year in of your benefits per director. So that's six gifts of 50 pounds each. Now, this is a really nice way to treat yourself or your team in a small way throughout the year, and it's completely tax free. So the other one to mention, so the other one to mention is staff entertainment and specifically the annual event exemption. So if you're hosting a social event for your team, like a Christmas party or a summer barbecue, the cost can be tax free for employees and deductible for the business. So here's how it works in simple terms. You can spend up to 150 pounds per person per year, and that includes VAT, food, drink, travel, venue, hire, everything. It must be an annual event. So think along the lines of Christmas party or summer barbecue or something that happens regularly once a year. And it needs to be open to all staff, not just directors or a particular team. So the good news employees can bring a guest like a partner, and the exemption still applies as long as the cost per head does not go over 150 pounds each. So for an employee and a guest, the total will need to say under 300 pounds. One really important point. This isn't an allowance. This is an exemption. So that means if you go over the 150 pound limit, even by a pound, the whole amount becomes a taxable benefit, not just the excess. And it doesn't have to be in one go. You could do a summer and a winter event as long as the total per year stays under the 150 pound threshold. And even if it's just you working in the business, as long as you're a director, you can still qualify. Just keep it reasonable and well documented. It's such a lovely way to give back to your team or even treat yourself. And HMRC is actually okay with it. So what can't I claim? Even if you want to, let's clear up a few things that people want to claim but really can't. Clothing. So unless this is a uniform or safety gear, ordinary clothes, even if you only wear them for work, are not allowed your own time. So you can't invoice your business for hours that you work unless you're on payroll or paying yourself a salary, haircuts, gym memberships or personal grooming, even if you want to look professional. HMRC does not consider these a valid expense, your mortgage or rent. So unless you have a formal rental agreement between you and your company, and even then, it has to be handled very carefully. Holidays. So no matter how much thinking time you do on the beach, it does not count as a business trip unless it's genuinely for work. So here's the practical bit. It's not just enough to know what's allowed. You also need to be able to prove it. So this means keeping receipts or invoices for every expense, using software or apps to track and categorize your spending. Writing short notes if something isn't obvious, like train to client meeting in London. If HMRC ever looks into your records, they're gonna wanna see the evidence. So get in the habit of recording your expenses on the go, not six months later when it's all a blur. So why is it worth getting help? See, here's the thing. Claiming business expenses isn't just about saving a bit of tax. It's about knowing your numbers,. Being in control of your finances and running your business more professionally, and that's where having a good accountant, someone who knows you, your goals and your business can make a big difference. We help you claim everything that you're entitled to, but also make sure that you're not pushing it too far and getting into murky territory. So my final thought, business expenses don't have to be scary or complicated as long as you stick to the wholly and exclusively for business rule, keep good records and ask questions. When you're unsure, you will be fine. You don't need to second guess every purchase or worry about getting into trouble. With the right setup and a bit of awareness, you can confidently claim what you're entitled to and make sure your business isn't paying more tax than it needs to. So next time you spend money, just pause for a second and ask, is this genuinely for my business? If the answer's yes and you've got a receipt, you are probably good to go. So thank you so much for tuning into this episode of the Balanced Business Podcast.. I hope it's helped make business expenses feel a bit more approachable and maybe a little bit empowering. Next time we're going to get into VAT when you need to register what it actually means for your business and how to handle it without getting lost in the admin. It's one of those things that seem complicated at first, but once you understand the basics, it all clicks into place. So I'm Nicola Hageman from the Numbers Quarter, and I'll see you in episode seven.