What are allowable expenses?
Allowable expenses are the costs a business incurs that HMRC accepts as deductible when working out taxable profit. They must be incurred wholly and exclusively for the purposes of the trade. Deducting allowable expenses reduces the profit figure that Corporation Tax, or Income Tax for the self-employed, is calculated on.
Common examples of allowable expenses
Typical allowable expenses include staff salaries and employer's National Insurance, office and premises costs such as rent and utilities, business insurance, professional fees such as accountancy and legal costs, travel costs directly related to business, marketing and advertising, and the cost of goods bought for resale. What counts as allowable can depend on the specific circumstances and the nature of the trade.
Expenses that are not allowable
Client entertainment, most costs of buying capital assets (which are instead usually relieved through capital allowances), fines and penalties, and expenses that are not wholly and exclusively for the business, such as personal costs mixed in with business ones, are generally not allowable. Getting this distinction right matters, since disallowed expenses added back to profit increase the tax bill.
Related terms: Corporation Tax, Capital Allowances, CT600.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.