In short: It depends on the purpose of the cost more than the item. An expense is allowable when it is wholly and exclusively for the business, so one purchase can pass in one business and fail in another.
A question I get asked regularly is: "Can I put X through the business?"
- Gym membership
- Care home costs
- TVs
- Uber trips
And my answer isn't automatically "no", it's:
"How is that expense wholly and exclusively for the purposes of your business?"
What does wholly and exclusively mean?
HMRC's Business Income Manual explains that the rule applies to companies and to unincorporated businesses, and that it is only satisfied if the sole purpose of the expense is the purposes of the trade. If a non-trade purpose is identified, the expenditure is not allowable, even if there is also a business reason for it. An incidental benefit that arises from a genuine business expense does not, of itself, mean the cost is disallowed.
Because an expense that's disallowed for one business might be perfectly allowable for another. It all depends on the actual purpose of the expense and how relevant it is to what your business does.
It's never really about the item. It's about the purpose behind it.
Which everyday items can qualify?
Sofa, rent, coffee machine, whatever it is, it can qualify as long as it's wholly and exclusively for the purposes of your business.
Rent for your business premises, a sofa for your waiting room, a coffee machine for clients to use? All genuinely business expenses.
HMRC's guidance lists rent for business premises among the costs that can be claimed. Equipment that you keep to use in the business is dealt with through capital allowances, which HMRC describes as letting you deduct some or all of the value of an item from your profits before you pay tax.
The same guidance shows the test working the other way. Gym membership fees appear in HMRC's list of costs a self-employed person cannot claim, and where a company pays club membership fees for an employee, HMRC's guidance is that the cost is reported on form P11D and Class 1A National Insurance is paid on the value of the benefit.
Does HMRC publish a list of allowable expenses?
However, here's the bit people miss:
HMRC doesn't hand you a definitive list of what you can and can't claim. Self assessment means exactly that, you determine what you can claim.
HMRC's published guidance gives categories of cost with examples, and tells readers who are not sure whether a business cost is allowable to contact HMRC. It also says you do not need to send proof of expenses when you submit a tax return, but you should keep proof and records so you can show them to HMRC if asked. For a company, HMRC's guidance is that you can hire an accountant, but you are still legally responsible for the company's records and accounts.
What happens if the cost is clearly personal?
If you're trying to put clearly personal costs through the business, those will get disallowed, and rightly so.
But start putting through things that clearly aren't for the business, and don't be surprised when HMRC disallow them and hit you with extra tax, interest, and potentially penalties.
HMRC's guidance on compliance checks says that if you owe more tax you will be asked to pay it within 30 days, that you will normally pay interest from the date the tax was due, and that you may also have to pay a penalty. How that plays out is covered in personal costs through the business.
What do you need to be able to show?
But if the expense genuinely relates to your business, you can show why, and you've got the receipts to back it up, there's no reason you shouldn't be able to claim it and get the tax relief you're entitled to.
For a limited company, HMRC's guidance says the accounting records must include all money spent by the company, with receipts given as an example, and that records must be kept for 6 years from the end of the last company financial year they relate to. The receipt shows what was bought. The reason it was bought for the business is something you record yourself, at the time.
For the costs that come up most often, see the expenses checklist, and for a missing receipt see what happens if you lose a receipt.
Tax rules and HMRC's approach change, and whether a cost qualifies depends on your own business, so this is general information rather than advice on a particular expense. If you want a specific cost looked at before you claim it, talk to us.
Common questions
HMRC's guidance for employers says that if a company pays club membership fees for an employee, it must report the cost on form P11D and pay Class 1A National Insurance on the value of the benefit. If the employee pays the fees and the company reimburses them, the amount counts as earnings. See [Expenses and benefits: club membership](https://www.gov.uk/expenses-and-benefits-club-membership).
HMRC's guidance for the self-employed sets out categories of cost that can be claimed, such as office costs, travel costs and staff costs, with examples of each. It tells readers who are not sure whether a business cost is an allowable expense to contact HMRC. See [Expenses if you're self-employed](https://www.gov.uk/expenses-if-youre-self-employed).
HMRC's Business Income Manual distinguishes two cases. Where a definite part or proportion of an expense is wholly and exclusively for the purposes of the trade, that part should not be disallowed, but an expense incurred for a dual purpose should be disallowed. See [BIM37007](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37007).
HMRC's guidance for the self-employed says you do not need to send in proof of expenses when you submit your tax return. You should keep proof and records so you can show them to HMRC if asked, and you must make sure your records are accurate. See [How to claim expenses](https://www.gov.uk/expenses-if-youre-self-employed/how-to-claim).
Related reading
Simon Jacobs is a Chartered Tax Adviser (CTA · ACA) and PwC trained, founder of SRJ International. He advises UK business owners on tax, profit extraction and exit. Read his full profile →