The Ultimate Business Expense Guide for London SMEs: What You Can Actually Claim in 2025
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You’ve just spent £8.50 on a coffee in Shoreditch while preparing for a client presentation. The Central Line was down, so you took a £15 Uber. Now you’re wondering: “Can I actually expense this?”
If you’re running an SME or startup in London, understanding business expenses is crucial for staying compliant with HMRC while maximizing your tax relief.
The One Rule That Solves 90% of Expense Questions
HMRC requires expenses to be “wholly and exclusively” for business. Here’s the simple test:
“But for my business, would I have incurred this cost?”
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- NO → Likely deductible
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- YES → Personal expense
Common London Scenarios: Can You Claim It?
☕ That £4.50 Coffee While Working
“But for my business, would I have bought this coffee?”
Answer: YES (you drink coffee anyway)
Result: ❌ Not deductible – considered personal subsistence
🚗 £15 Uber to Client Meeting
“But for my business, would I have made this journey?”
Answer: NO (purely for business)
Result: ✅ Deductible business travel
🍽️ £65 Client Lunch
“But for my business, would I have taken them to lunch?”
Answer: NO (business relationship only)
Result: ❌ Not tax-deductible (HMRC doesn’t allow business entertainment)
🏃♂️ £50 Monthly Gym Membership
“But for my business, would I have joined this gym?”
Answer: YES (personal health/fitness)
Result: ❌ Not deductible, even if you network there
What London SMEs Can Actually Claim
✅ Always Deductible
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- Business travel (not commuting to your regular office)
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- Professional software (Xero, Adobe, Slack, etc.)
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- Industry memberships and professional subscriptions
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- Business insurance premiums
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- Co-working space memberships
✅ Partially Deductible
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- Home office costs: £6/week flat rate OR calculate actual business proportion
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- Mobile phone bills: Business usage percentage only
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- Business equipment: Laptops, monitors used primarily for work
❌ Never Deductible
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- Commuting to your regular workplace
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- Personal meals and coffee (even while working)
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- Business entertainment (client meals, drinks)
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- Gym memberships and personal subscriptions
The Expenses You’re Probably Missing
Pre-incorporation costs (up to 7 years before): Setup fees, initial marketing, legal costs
Professional development: Industry conferences, business training, relevant qualifications
Technology: Business software subscriptions, cloud storage, professional tools
Record-Keeping Made Simple
Without receipts and documentation, even legitimate expenses get rejected. Best practices:
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- Photograph receipts immediately using apps like Dext
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- Note the business purpose of each expense
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- Separate business and personal bank accounts
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- Review monthly – don’t wait until year-end
Red Flags That Trigger HMRC Attention
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- Claiming 100% of mixed-use expenses (phone, home office)
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- Excessive entertainment claims
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- Round numbers without receipts
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- Personal expenses misclassified as business
Quick Decision Framework
When unsure about an expense, ask yourself:
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- But for test: Would I have bought this without my business?
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- Documentation: Do I have a receipt and business justification?
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- Exclusivity: Is this solely for business, or mixed personal use?
If you can’t confidently answer yes to questions 1 and 2, don’t claim it.
The Bottom Line
Understanding expense rules protects you from HMRC penalties while ensuring you claim everything you’re entitled to. When in doubt, be conservative – it’s better to miss a marginal claim than face an investigation.
The entrepreneurs who get this right from day one build stronger, more sustainable businesses that can weather audits and attract serious investment.
This guide reflects current HMRC guidance as of July 2025. Individual circumstances vary – consult a qualified accountant for specific advice.
Need help optimizing your business expenses? Our London-based team specializes in helping SMEs and startups maximize their tax efficiency while staying fully compliant. Get in touch for expert guidance. +44 20 7680 9337
