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Small businesses are losing thousands due to unclaimed expenses

2-minute read

Conor Shilling

21 July 2021

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If you’re self-employed, most of your business expenses can be claimed back against your tax bill each year.

However, new research suggests that many small businesses aren’t sure which expenses they can claim for, potentially costing them thousands of pounds each year.

A survey of over 1,200 small business owners by The Accountancy Partnership found that 81 per cent don't understand what qualifies as a legitimate business expense.

It estimates that around one in ten small businesses have no idea what they can and can’t expense.

How much are small businesses losing in unclaimed expenses?

The survey found that 65 per cent of participants had failed to file a business expense in the past, with losses ranging from less than £100 to more than £10,000.

Here’s a breakdown of how much small business owners estimate they lose each year due to unclaimed expenses:

Annual lossPercentage of small businesses to estimate loss
Less than £10035%
£100 to £49935%
£500 to £99913%
£1,000 to £2,4998%
£2,500 to £4,9994%
£5,000 to £10,0003%
More than £10,0002%

Although the majority of small businesses lost less than £500 due to unclaimed expenses, this could add up to a significant amount over a number of years.

The Accountancy Partnership estimates that all UK small businesses lose a total of £5.6 billion each year due to unclaimed expenses.

Which expenses are least likely to be claimed?

Small business owners are least likely to claim expenses for:

  • work clothing
  • food and drink
  • hire purchase
  • vehicle expenses
  • premises costs

Even though these costs usually count as allowable business expenses. For example, you can claim business premises expenses for rent, utility bills, and property insurance. You can also claim travel expenses for vehicle insurance, fuel, and breakdown cover.

Small business owner commuting on a train with laptop

Small business owners are reminded that even strange expenses can be claimed for – as long as HMRC sees them as genuine and reasonable.

Survey respondents named the most unusual expenses they'd claimed for, including two live lobsters, a Venus flytrap plant, and a full Lederhosen outfit.

Why are business owners failing to claim expenses?

Alongside not being sure what counts as an allowable expense, small business owners admitted to several other reasons why they failed to make a claim. These included:

  • losing receipts and invoices (43 per cent)
  • not being bothered and not having time to claim (41 per cent)
  • unsure whether their claim would pass HMRC’s rules (36 per cent)
  • being worried about HMRC penalties (eight per cent)

Working with an accountant and brushing up on government guidance could help you avoid some of these problems in the future.

Learn more about what you can claim on tax

To make sure you’re making the most of allowable business expenses, read our in-depth guide on self-employed expenses.

It defines allowable business expenses, explains what you can claim on tax, and shows you how to add up your self-employed expenses.

Are you aware of which business expenses you can and can’t claim for? Let us know in the comments below.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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