What does “wholly and exclusively” mean?
Put simply, an expense must be entirely for the purpose of your trade to be allowable. If there’s a private element or a dual purpose, HMRC is likely to disallow it leading to interest on the underpaid tax
Examples of allowable expenses:
- Office rent or coworking space fees
- Staff salaries and pensions
- Business insurance
- Accountancy fees
- Business travel (not including ordinary commuting)
Common problem areas:
- Clothing – A suit for work isn’t allowable, but branded uniforms or protective gear are.
- Travel – Driving to your regular workplace doesn’t qualify, but travel to client sites usually does.
- Entertaining – Taking clients out to lunch is not allowable, but staff events (like the annual Christmas party, within certain limits) often are.
Why it matters
Getting it wrong can mean higher tax bills, HMRC enquiries, or even penalties. By ensuring expenses are recorded accurately and justified as wholly and exclusively for business, you can confidently reduce your taxable profits.
