Allowable Business Expenses Most UK SMEs Miss – Reduce Your Company Tax Bill
UK small and medium-sized businesses (SMEs) are under increasing financial pressure, and reducing costs in a legitimate way has never been more important. One of the simplest and most effective ways to reduce your Corporation Tax bill is by claiming all allowable business expenses. However, many SMEs fail to claim everything they are entitled to, often leaving thousands of pounds of tax relief unclaimed every year.
In this guide, we explain what counts as an allowable expense, which deductions are most commonly missed by SMEs, and how both limited companies and sole traders can legally reduce their tax liabilities.
What counts as an allowable business expense?
Allowable expenses are costs incurred wholly and exclusively for business purposes. These can be deducted from your business income before tax is calculated.
For limited companies, allowable expenses reduce Corporation Tax
For directors, some expenses can be reimbursed personally tax-free
For sole traders, allowable expenses reduce personal tax through Self Assessment
Common SME examples include:
Office rent, utilities and overheads
Salaries, subcontractors and staff costs
Professional fees such as accountants and legal advice
Business insurance
Technology, software and licenses
Business travel and accommodation
Website and marketing costs
Bank charges and finance costs
These are widely claimed. However, many SMEs and directors are still missing out on significant tax savings.
Commonly missed expenses for SMEs and limited company directors
Use of home as an office
If you run your company partly from home, you can claim a proportion of household bills including electricity, heating, mortgage interest, rent, council tax and broadband.
Director’s expenses
Company directors often forget they can claim legitimate expenses such as:
Working-from-home allowance
Travel to temporary workplaces
Business phone and internet bills
Professional development costs
These can be reimbursed without triggering additional tax when treated correctly.
Mileage and vehicle expenses
If you use your personal car for business journeys, you can claim mileage at HMRC’s approved rates:
45p per mile for the first 10,000 miles
25p per mile thereafter
Staff entertainment
Client entertainment is not allowable, but staff entertainment is. SMEs can claim up to £150 per staff member per year for events like team meals or Christmas parties, provided it meets HMRC rules.
Trivial benefits for directors
You can give directors and employees gifts up to £50 each that are not cash or cash vouchers, without paying tax. This is widely underused by SMEs.
Business equipment and technology
Many businesses buy computers, tools and office furniture but fail to claim full relief under the Annual Investment Allowance. This allows most equipment to be written off against tax in the year of purchase.
Software subscriptions
Most SMEs now use cloud-based systems but forget to categorise them as business expenses. This includes:
QuickBooks, Xero and accounting software
Adobe, Canva, Zoom
Microsoft 365 or Google Workspace
CRM systems
Marketing and brand assets
Items like domain renewals, website support, advertising, SEO services, printing and branding are all allowable but often missed.
Business use of home broadband, utilities and phone
If these are used for company purposes, a fair business portion is allowable.
What about sole traders?
Sole traders can also benefit from claiming allowable expenses to reduce Income Tax and Class 4 NIC. They can claim similar costs as SMEs plus simplified flat-rate expenses for working from home and using personal vehicles for business.
Compliance requirements
Whether you are an SME or sole trader, HMRC requires:
Clear records of all expenses
Receipts and invoices kept for six years
Business-only expense claims (no personal costs)
Justified business-use percentages when shared with personal use
Final thoughts
Most SMEs and business owners focus on growth and delivery, not tax efficiency. As a result, many overpay Corporation Tax by failing to claim legitimate business expenses. With the right accounting support, you can reduce your tax bill, improve cash flow and ensure full HMRC compliance.
At Arctic Accounting Limited, we specialise in helping SMEs, limited company directors and growing businesses improve tax efficiency while staying fully compliant.
Speak to us for tailored SME tax support
If you want to make sure your business is not missing out on allowable expenses or overpaying Corporation Tax, we can help. We offer expert tax advice, expense reviews and full company tax return services.
Visit our Self Assessment and business tax services page:
https://www.arcticaccounting.com/self-assessment-tax-returns
Or contact our team at:
admin@arcticaccounting.com
07445217004
