Software and Subscriptions: What's Allowable as a Business Expense

Software Is a Legitimate Business Expense

In today's business landscape, software subscriptions are as essential as electricity. Whether you use accounting software, design tools, project management platforms, or industry-specific applications, these costs are generally allowable as business expenses — provided they're used for your trade.

The good news is that most software costs are straightforward to claim. The key question, as always, is whether the software is used wholly and exclusively for business purposes.

Fully Allowable Software Costs

If a subscription or software licence is used exclusively for your business, you can claim 100% of the cost. Common examples include:

Accounting and bookkeeping software: Accounted, Xero, QuickBooks, FreeAgent. These are clearly business tools and fully deductible.

Design and creative tools: Adobe Creative Cloud, Figma, Canva Pro, Sketch. If you're a designer, photographer, or content creator, these are essential business tools.

Project management: Asana, Trello, Monday.com, Basecamp, Notion. Used to manage business projects and tasks.

Communication tools: Zoom, Microsoft Teams, Slack, Google Workspace. Business communication platforms.

Industry-specific software: CAD software for architects, scheduling tools for tradespeople, booking systems for consultants, POS systems for retailers.

Website and hosting: Domain registration, web hosting (AWS, Vercel, Netlify), CMS subscriptions (WordPress, Squarespace, Shopify).

Email marketing: Mailchimp, ConvertKit, ActiveCampaign. Tools for reaching customers.

CRM systems: HubSpot, Salesforce, Pipedrive. Customer relationship management tools.

Cloud storage: Dropbox Business, Google Drive, iCloud (business use), OneDrive.

Mixed-Use Software

Some software serves both personal and business purposes. In these cases, you claim the business proportion — just like phone or broadband costs.

Examples of mixed-use software:

• Microsoft 365 used for business documents and personal email
• Spotify (if you're a business that plays background music, but you also listen personally)
• Cloud storage where personal photos sit alongside business files

Determine a reasonable business percentage and claim that proportion. If you use Microsoft 365 primarily for business with occasional personal use, 80% might be reasonable. Keep a note of how you arrived at your percentage.

One-Off Software Purchases vs Subscriptions

Subscriptions (SaaS): Monthly or annual subscription fees are claimed as revenue expenses in the period they relate to. A £120/year subscription is claimed as £120 in that tax year.

One-off purchases: If you buy software outright (a perpetual licence), the treatment depends on the cost:

• Lower cost purchases: Generally treated as a revenue expense and claimed in full in the year of purchase
• Higher cost purchases: May be treated as capital expenditure and claimed through capital allowances

In practice, most software is now subscription-based, making this distinction less relevant than it used to be. But if you buy a perpetual licence for expensive specialist software, check whether it should be capitalised.

App Store Purchases

Apps purchased through the Apple App Store, Google Play, or similar platforms are allowable if they're for business use. This includes:

• Business apps (invoicing, time tracking, mileage logging)
• Productivity apps used for work
• Industry-specific apps

Keep your purchase receipts or app store transaction history as evidence. The business-use test applies as normal.

Hardware vs Software

Sometimes software comes bundled with hardware. If you buy a laptop that includes Windows or macOS, the software is part of the hardware cost and you claim it as a single item (either as a revenue expense or capital allowance depending on cost).

If you buy software separately to install on existing hardware, it's a standalone expense.

Record-Keeping Tips

For software and subscription expenses:

• Keep invoices or receipts for all subscriptions (email confirmations are fine)
• Note the business purpose of each subscription
• Record the business proportion for mixed-use software
• Track annual totals — individual subscriptions may be small, but they add up significantly over a year

Many sole traders are surprised when they total up their annual software spend. A typical small business might spend:

| Software | Monthly | Annual | |----------|---------|--------| | Accounting software | £15 | £180 | | Design tools | £20 | £240 | | Cloud storage | £8 | £96 | | Project management | £10 | £120 | | Communication | £12 | £144 | | Website hosting | £15 | £180 | | Email marketing | £15 | £180 | | Total | £95 | £1,140 |

At the basic tax rate, that's £228 saved. At the higher rate, it's £456.

Common Mistakes

Not claiming small subscriptions. A £5/month tool doesn't feel worth tracking, but ten small subscriptions add up to £600/year.

Claiming personal subscriptions. Netflix, personal Spotify, gaming subscriptions — unless you can demonstrate genuine business use, these are personal expenses.

Forgetting annual renewals. A subscription you set up two years ago and forgot about is still a business expense if you're still using it. Review your bank statements for recurring software charges.

Double-counting. If software is included in a package you're already claiming (e.g., Google Workspace includes cloud storage), don't also claim a separate Google Drive subscription.

With Accounted, Penny automatically identifies recurring software subscriptions in your bank transactions and categorises them correctly. No more forgotten deductions.

Let Penny track your subscriptions automatically. Start your free trial and see how much you could be claiming.