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Business Expenses Guide for Sole Traders and Limited Company Directors in 2026 (Part 4)
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In the previous sections, we've looked at claiming expenses for technology, vehicles and business travel. Now we move into an area where even experienced business owners can become uncertain.
Working from home. Meals. Client entertainment. Mortgage payments.
These are topics that often generate conflicting advice online. One website says you can claim everything. Another says you cannot claim anything. The truth, as is often the case with tax, sits somewhere in the middle.
At Peter Hodgson & Co, we regularly help businesses throughout Tunbridge Wells, Kent and the South East of England review their expense claims to ensure they are both tax-efficient and fully compliant with HMRC rules. A small adjustment today can prevent an expensive enquiry tomorrow.
Let's look at some of the most common questions.
Remote working is no longer unusual. For many directors, contractors and consultants, it has become the normal way of doing business.
Whether you're running a marketing agency from Tunbridge Wells, providing IT consultancy across Kent or managing clients throughout the UK, there's a good chance that part of your home has become your office.
The question is simple.
Can your company contribute towards the cost?
In many cases, yes.
If you work from home, your business is likely to incur additional costs that wouldn't otherwise exist.
These may include:
HMRC recognises this.
However, the method of claiming depends on whether you operate as a limited company director or as a sole trader.
Although the rules differ slightly, the principle remains the same: you should only claim costs that genuinely relate to your business activities.
For limited company directors, one of the simplest options is to receive the HMRC-approved working from home allowance, where appropriate.
Alternatively, if the business incurs higher genuine costs, there may be other methods available, such as formal expense reimbursements or licence agreements between the company and the homeowner.
The right approach depends on your circumstances.
I remember speaking with a software developer from Sevenoaks who had converted an entire spare bedroom into a permanent office. He assumed the flat-rate allowance was his only option. After reviewing his situation, we identified a more suitable arrangement that better reflected the actual business use of the property.
Every situation is different.
Sole traders generally have greater flexibility when claiming a proportion of household running costs.
Typical expenses may include:
The proportion claimed should always be reasonable.
For example, imagine you use one room as an office for eight hours each weekday. Rather than claiming the entire household bill, you would calculate a fair proportion based on:
HMRC does not expect mathematical perfection.
They do expect sensible reasoning.
Many sole traders worry about claiming too little. Others worry about claiming too much. The best approach is somewhere in between.
One local client, a freelance graphic designer near Maidstone, hadn't claimed any household costs for three years because she believed it was "too complicated."
In reality, it took us less than thirty minutes to calculate a reasonable annual claim. The result wasn't life-changing. But it reduced her tax bill every year thereafter.
Those small savings accumulate surprisingly quickly.
This is one point that often gets overlooked.
If you dedicate an entire room exclusively to business use — and never use it personally — you could unintentionally affect your Capital Gains Tax position when you eventually sell your home.
That doesn't mean you shouldn't work from home.
It simply means your claims should be structured carefully.
For most clients, we recommend retaining at least some personal use of the room, even if it is occasional. That simple approach can help avoid unnecessary complications later.
Professional advice is particularly valuable here because the wrong decision today could have tax consequences many years into the future.
Few topics create more confusion.
One client recently smiled and asked me,
"If I take a customer out for lunch, surely that's a business expense?"
From a commercial perspective, absolutely. From a tax perspective, not necessarily.
If you're travelling on business and need to buy meals because you're away from your normal place of work, those costs are often allowable.
Examples include:
If the journey itself qualifies as business travel, the associated meal expenses often qualify too.
The important point is that the meal must arise because of the business journey.
Buying lunch at your regular office every Tuesday is simply part of everyday living.
HMRC sees those situations very differently.
This distinction catches out many business owners.
Staff entertaining is generally treated much more favourably than client entertaining.
For example:
By contrast, taking prospective customers to expensive restaurants is usually not deductible for Corporation Tax purposes, even though it may be an important part of winning new business.
It feels counterintuitive.
Yet those are the current tax rules.
Many employers are pleased to discover that annual staff functions can often be provided tax-free, provided certain HMRC conditions are met.
These events should generally:
For growing businesses around Kent, this can be an excellent way to reward employees while remaining tax-efficient.
It is always worth checking the rules before making bookings, especially if your business has expanded during the year.
Generally speaking, client entertainment includes:
Although these may strengthen business relationships, they usually do not qualify for Corporation Tax relief.
One director once joked,
"So HMRC is happy for me to entertain my staff but not my customers?"
It's an oversimplification.
But there is certainly some truth behind the joke.
Typical allowable meal expenses include:
The common thread is straightforward.
The expense exists because of the business journey — not because you needed to eat lunch.
This is one of the most frequently searched questions online.
Unfortunately, it also has one of the shortest answers.
Usually, no.
Your mortgage is considered a personal expense.
Even if you run your company from home, the company cannot simply start paying your monthly mortgage repayments as a business expense.
Doing so would normally create personal tax consequences and potentially trigger additional Corporation Tax issues.
It is rarely the most tax-efficient solution.
Rather than trying to claim mortgage repayments directly, consider the legitimate alternatives.
Depending on your circumstances, you may be able to claim:
These approaches achieve much the same commercial objective while remaining within HMRC's rules.
Occasionally, directors ask whether they can simply withdraw company funds to pay their mortgage.
Technically, yes.
But how those withdrawals are treated depends on whether they represent:
Each option has different tax implications.
Choosing the wrong one can become surprisingly expensive.
Before making substantial withdrawals, it is always worth discussing the options with your accountant.
A ten-minute conversation today could save hundreds — or even thousands — of pounds later.
Whenever a company pays for something that primarily benefits the director personally, HMRC will usually examine whether it creates a Benefit-in-Kind or another taxable benefit.
Examples include:
These costs should generally remain separate from the company's business expenses.
Mixing personal and company spending is one of the quickest ways to create bookkeeping problems.
The good news is that there are usually better ways to access money from your company.
Depending on your circumstances, these may include:
The most suitable combination depends on your income, profits and long-term objectives.
There is rarely a single answer that works for every business owner.
That is why personalised tax planning remains so valuable.
At Peter Hodgson & Co, we regularly advise limited companies, contractors and owner-managed businesses across Tunbridge Wells, Kent and the wider South East on extracting profits in the most tax-efficient manner while remaining fully compliant with HMRC legislation.
Working from home has become a permanent feature of modern business, but that doesn't mean every household expense is automatically tax-deductible.
In this part of the guide, we've seen that:
In Part 4, we'll cover another frequently misunderstood area — claiming clothing as a business expense — before answering some of the most common questions we receive from business owners. We'll finish with practical guidance on how Peter Hodgson & Co helps clients throughout Tunbridge Wells, Kent and the South East of England minimise their tax liabilities while staying confidently on the right side of HMRC.
Disclaimer:
The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.
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