A partnership can claim tax relief for many of the costs it incurs while running its business. These are known as allowable expenses and are deducted from the partnership’s income when calculating its taxable profit. This guide explains what allowable expenses are and the types of costs that partnerships can usually claim.
What are allowable expenses?
Partnerships incur a range of costs in the course of running their business. Many of these are allowable expenses, which can be deducted from the partnership’s income when calculating its taxable profit.
To be allowable for tax purposes, an expense must be incurred wholly and exclusively for the purposes of the business. This means there must be a genuine business purpose for the expense. If a cost has both a business and a personal element, only the business proportion can normally be claimed.
Tax doesn't need to be taxing
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Which expenses are allowable?
Here are some examples of expenses which are allowable for tax purposes.
| Expense category | Examples |
|---|---|
| Cost of sales | Goods bought for resale, raw materials and items used to provide services. |
| Employee costs | Wages and salaries, employer National Insurance contributions, pension contributions and other employment costs. |
| Premises costs | Rent, business rates, utilities, insurance, repairs and maintenance for business premises. |
| Motor and travel | Business mileage, vehicle running costs (where appropriate), parking, train fares, accommodation and subsistence for qualifying business travel. |
| Office and administration | Telephone and mobile costs, internet, stationery, postage, printing, software subscriptions and office equipment. |
| Professional fees | Accountancy fees, legal fees relating to the business and other professional services. |
| Advertising and marketing | Advertising, website costs, online marketing and promotional materials. |
Which expenses are not allowable?
Some business costs cannot be deducted when calculating a partnership’s taxable profit.
Common examples include:
| Expense category | Explanation |
|---|---|
| Capital expenditure | The cost of buying or improving business assets, such as vehicles, buildings or equipment, is not normally an allowable expense. However, the partnership may be able to claim capital allowances instead. |
| Depreciation | Depreciation is an accounting adjustment used to spread the cost of an asset over its useful life. It is not an allowable expense for tax purposes. |
| Business entertaining | The cost of entertaining customers or other business contacts is not usually allowable. Staff entertainment may be allowable, provided the conditions for tax relief are met. |
| Donations | Political donations are not allowable business expenses. Charitable donations are not usually deducted when calculating trading profits, although tax relief may be available in other ways depending on the circumstances. |
| Penalties and fines | Fines and penalties for breaking the law are not allowable business expenses. |
| Certain legal fees | Legal costs relating to the purchase of business assets or to breaking the law are not allowable business expenses. |
| Private expenditure | Personal expenses cannot be claimed. Where an expense relates partly to the business and partly to private use, only the business element can normally be claimed. |
An expense isn’t automatically allowable just because it was incurred by the business. It must meet HMRC’s rules before it can be deducted when calculating the partnership’s taxable profit.
Note that partners’ drawings are not a business expense. They are simply withdrawals of profits that belong to the partners.
What are simplified expenses?
Simplified expenses allow some businesses to calculate certain allowable expenses using HMRC’s flat rates instead of working out the actual business costs.
Eligible partnerships can use simplified expenses for:
- business mileage
- working from home
- living at your business premises (where the conditions are met).
Simplified expenses can only be used by:
- sole traders
- business partnerships where all the partners are individuals.
They cannot be used by:
- limited companies
- partnerships that include a company as a partner.
Using simplified expenses is optional. If you choose not to use them, you can claim the actual allowable business costs instead, provided you have appropriate records to support your claim.
For more information about the flat rates available and when they can be used, see the guidance on GOV.UK.
How are expenses reflected in the partnership’s tax returns?
Allowable business expenses are deducted from the partnership’s business income when calculating its taxable profit.
The partnership records its income and allowable expenses throughout the year and includes them on the partnership tax return. This determines the partnership’s taxable profit (or loss), which is then allocated between the partners according to the partnership agreement.
It’s important to keep accurate records to support any expenses you claim, as HMRC may ask to see evidence if it checks the partnership’s tax return.
Checklist: What records do I need to keep?
Accurate records of the partnership’s income and expenses should be kept to support the figures included on the partnership tax return and each partners self assessment. Most partnerships should keep their business records for at least six years, as HMRC may ask to see them if it checks the partnership’s tax return.
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