Track business expenses: steps, receipts and tax tips

Published Friday 20 March 2026

Table of contents

• What are business expenses?
• The importance of tracking business expenses
• Tax-deductible expenses and how they lower your tax bill
• How to track business expenses in 6 steps
• Best practices for tracking expenses
• How to reimburse expenses
• Creating expense reports
• Making expense tracking easier
• FAQs on tracking business expenses

Key takeaways

• Separate your business and personal spending by opening a dedicated business bank account to keep your records clean and make expense tracking straightforward for HMRC compliance.
• Record expenses immediately as they happen rather than letting receipts pile up, using mobile apps or accounting software to capture and categorise costs the same day to avoid missed deductions.
• Claim all allowable business expenses like office costs, travel, professional services, and premises costs to reduce your taxable profit and lower the amount of tax you pay.
• Review and reconcile your expense records against bank statements weekly or fortnightly to catch errors early and maintain accurate financial records throughout the year.

What are business expenses?

Business expenses are the costs you pay to run your business. They include spending on inventory, supplies, insurance, rent, and utilities.

When you calculate profits, you subtract these expenses from your income. Tracking them accurately helps you understand what your business actually costs to operate.

The importance of tracking business expenses

Tracking expenses gives you control over your money and helps you make smarter decisions. Without accurate records, you're guessing at profitability and likely paying more tax than you need to.

Expense tracking helps you:

• Stay on budget: See exactly where your money goes each month
• Lower your tax bill: Claim every deduction you're entitled to
• Reimburse purchases: Pay back anyone who buys things for your business
• Spot problems early: Catch overspending before it affects cash flow

You can make this easier with accounting software like Xero, which automates much of the work.

Tax-deductible expenses and how they lower your tax bill

Tax-deductible expenses are business costs that HMRC allows you to subtract from your income before calculating tax. The lower your taxable profit, the less tax you pay.

When you miss recording an expense, your profits look bigger than they actually are. You end up paying tax on money you've already spent. Every forgotten receipt costs you.

Not every expense qualifies for a deduction. HMRC must agree the spending was necessary for your business. Common tax-deductible expenses include:

• Office costs: Stationery, phone bills, software subscriptions
• Travel: Business mileage, train fares, accommodation for work trips
• Professional services: Accountant fees, legal advice, trade subscriptions
• Premises: Rent, utilities, business rates, insurance

Check the HMRC website for the full list or speak with a tax professional to make sure you're claiming everything you're entitled to.

How to track business expenses in 6 steps

Tracking expenses doesn't need to be complicated. Follow these six steps to build a system that works:

1. Open a separate business bank account

Keep business and personal spending apart. A dedicated account makes tracking straightforward and keeps your records clean for HMRC.

2. Choose your tracking method

Pick a system you'll actually use. Options include accounting software, spreadsheets, or dedicated expense apps. Cloud-based tools let you track spending from anywhere.

3. Record expenses as they happen

Don't let receipts pile up. Log each expense the same day or use an app that captures them automatically. Waiting until month-end leads to forgotten costs and missed deductions.

4. Capture and organise receipts

Photograph paper receipts immediately using your phone or accounting app. Store digital receipts in clearly labelled folders. HMRC may ask for proof of any expense you claim.

5. Categorise your expenses

Group spending into categories like travel, supplies, or utilities. Consistent categorisation helps you spot trends and makes tax returns easier.

6. Review and reconcile regularly

Check your records against bank statements weekly or fortnightly. Catching errors early prevents bigger problems at tax time.

Best practices for tracking expenses

Keep these best practices in mind to make expense tracking easier and more effective:

• Set a regular schedule: Update your records weekly or fortnightly to prevent backlogs
• Use digital receipt capture: Photograph receipts immediately to avoid lost paperwork
• Separate personal and business spending: Never mix accounts or you'll create confusion at tax time
• Keep backup copies: Store important receipts in multiple locations, digital and physical
• Review spending patterns: Check your expenses monthly to spot opportunities to save
• Reconcile accounts regularly: Match your records against bank statements to catch errors early

Choose a specific time each week to update your records, whether that's Friday afternoon or Monday morning. Block it in your calendar and protect that time.

Pick tools that fit your workflow. If you're always on your phone, use a mobile app. If you prefer working at a desk, desktop software might suit you better. The best system is one you'll actually use consistently.

Start with the basics and refine as you go. You don't need a perfect system on day one. You need one that captures every expense and grows with your business.

How to reimburse expenses

Expense reimbursement happens when you pay back someone who spent their own money on business costs. This happens regularly when owners, family members, or employees make purchases for the business. Learn more about employee expense management.

Every reimbursement involves three steps:

1. Pay back the person who covered the expense
2. Record the cost in your business accounts
3. Keep proof of purchase for any tax-deductible expenses

You can only reimburse expenses you know about. Set up a simple reporting process so people can submit their claims with all the details you need.

Creating expense reports

An expense report documents what was purchased for the business and who paid for it. You need these reports to process reimbursements and keep accurate records.

Every expense report should include:

• What: The item or service purchased
• Who: The person who paid
• When: The date of purchase
• Why: The business purpose
• How much: The total amount spent
• Proof: The receipt or invoice

For occasional claims, a simple expense report template works fine. If people submit expenses regularly, consider an app instead. Mobile expense apps let employees photograph receipts and submit claims from their phone, which speeds up the process and reduces lost paperwork.

Making expense tracking easier

Good expense tracking gives you clarity over your spending and protects you at tax time. It also frees up mental energy for the work that actually grows your business.

The key is finding a method you'll stick with. Start simple, stay consistent, and refine your system as your business evolves.

You can automate much of this work with modern accounting software. With tools like Xero, you can connect directly to your bank, capture receipts on your phone, and categorise expenses automatically. You spend less time on admin and more time on what matters.

Ready to simplify your expense tracking? Get one month free and see how much time you could save.

FAQs on tracking business expenses

Here are answers to common questions about managing your business expenses.

What is the £75 rule for receipts?

You don't need a receipt for business expenses under £75, except for lodging. For VAT-registered businesses, you can reclaim VAT on supplies of £25 or less without a receipt if the supplier is VAT registered. However, keeping receipts for all expenses is still good practice.

How long should I keep business expense records?

You must keep your records for at least five years after the 31 January submission deadline of the relevant tax year. HMRC can ask to see them at any point during this period.

Can I track business expenses on my phone?

Yes. With most accounting apps, including Xero, you can photograph receipts and log expenses directly from your phone. This makes it easy to track spending as it happens.

What should I do if I lose a receipt?

Request a duplicate from the supplier, or use a bank or credit card statement as backup evidence. Make a note explaining the expense and keep any other supporting documentation.

Do I need different tracking methods for tax purposes?

No. The same records work for both day-to-day management and tax returns. Just make sure you categorise expenses correctly and keep proof of purchase for any deductions you claim.