How to Track Allowable Business Expenses

Step 1. Know Which Costs HMRC Classes as Allowable Before You Record Anything

The “Wholly and Exclusively” Test in Practice

Under ITTOIA 2005, section 34, and CTA 2009, section 54, expenses are deductible only when incurred wholly and exclusively for business purposes. If business and personal use cannot be clearly separated, HMRC may disallow the full claim.

While both limited companies and sole traders and partnership firms can claim costs as office expenses, software subscriptions, professional fees, business travel charges and relevant training, their tracking requirements are completely different. Sole traders and partnership firms can use much simpler expense records, but limited companies are required by the authorities to keep every record or receipt for their claims.

Step 2. Decide Whether to Use Simplified Expenses or Actual Costs

Vehicles: The Mileage Rate That Changed in April 2026

From 6 April 2026, the approved mileage rate for cars and vans rises from 45p to 55p per mile for the first 10,000 business miles each year, increasing the claimable amount for those miles.

If actual costs, fuel, insurance, maintenance, or capital allowance exceed the flat rate, compare both methods before deciding. Use the mileage change as the transition into method comparison.

Once you adopt the mileage rate for a vehicle, you can’t switch to actual costs for that vehicle. This choice is permanent from the first claim, so compare methods before filing mileage for a new vehicle.

Working From Home: Flat Rate or Actual Costs

For home working, the flat rate depends on the number of monthly hours.

If your actual additional household costs attributable to your working space, including the proportion of heating, broadband, and rent used exclusively for business, exceed the flat rate, actual costs may give you a larger deduction.

How Much Can You Claim for Business Mileage?

Enter your annual business miles to see your allowable claim under the new 55p rate and compare it with what the old 45p rate would have returned.

Step 3. Record Each Expense at the Point It Is Incurred, Not at Month-End

What Every Expense Record Must Include

HMRC accepts digital photographs of paper receipts as valid evidence under its record-keeping guidance RK/BK1. A photo taken at the point of purchase is legally sufficient. The image must show four fields: date, supplier name, amount (including VAT, where applicable), and the specific business purpose. Tools like Receipt Bot extract details from photographed receipts and send them to your accounting software, making capture at the point of purchase practical.

Mileage and Cash: The Two Records That Go Missing Most Often

Business mileage is often under-claimed and reconstructed from memory at year-end. Update your mileage log after each trip: record date, start point, destination, purpose, and distance. Reconstructing journeys later is unreliable and can be challenging.

Cash transactions need a written record even without a matching bank statement. A petty cash receipt is HMRC’s only accepted proof for cash payments. This is where records often have gaps.

Step 4. Reconcile Your Expenses Against Your Bank Statement Every Week

Matching Every Transaction to Evidence

Weekly reconciliation comparing your recorded expenses against your bank statement turns expense tracking from a loose habit into a defensible record. Every outgoing bank transaction needs a corresponding receipt, invoice, or expense record. A transaction without such evidence is a compliance gap that could lead to problems. Use this weekly check to keep the evidence trail continuous.

A receipt found months later is harder to verify and invites more scrutiny during an enquiry. Flag mismatches promptly, while purchases are recent and suppliers are reachable.

HMRC Benchmarks and Why Category Accuracy Matters

HMRC’s Transparent Benchmarking programme compares your business’s profit and expense ratios with sector averages, calculated from tax returns of businesses in the same field. If your expenses in any category are significantly higher or lower than the average, you may receive a benchmarking letter. Repeated differences can increase the risk of a formal enquiry, so use the comparison to spot issues early.

Group expenses into consistent categories each week so the totals match the SA103F or Corporation Tax headings. If a category is high, know why before you file. See the software guide for automatic categorisation.

Final Thoughts

A good expense log lets your return be a summary of records, not a rushed reconstruction.

Keep that final check in mind as you move from recording to filing. Good expense tracking helps you claim what you’re entitled to, maintain accurate records, and stay prepared for HMRC requirements at any time.

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