An expense is money your business spends to operate. This guide explains allowable expenses, how they reduce your tax bill, and what you cannot claim.
Published July 2026 · Updated July 2026
An expense is any cost your business incurs to earn income, from a monthly software subscription to travel, stock, rent or professional fees. In your accounts, expenses reduce profit.
Because tax is charged on profit, allowable expenses lower the tax you pay. HMRC's test is that a cost must be 'wholly and exclusively' for the business. Some costs are specifically disallowed, such as client entertaining and fines, and personal spending never qualifies.
Keep receipts and categorise spending correctly so you claim everything you are entitled to and nothing you are not. Digital record keeping makes this straightforward and is required under Making Tax Digital.
Day to day running costs are expenses. Larger, long lasting purchases (like equipment) are 'capital' and are treated differently, often through capital allowances rather than a simple expense.
You earn £40,000 and have £9,000 of allowable expenses:
Yes, a proportion of home costs or a simplified flat rate. The method depends on how much you work from home.
Sometimes, for example reasonable subsistence when travelling for work. Everyday meals near your normal workplace usually are not.
You should keep evidence for expenses you claim. Without records, HMRC can disallow the deduction if it queries your return.
Source: GOV.UK ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.