The useful distinction is between cover you must have and cover you may need because of how your business operates. This guide explains when business insurance is required, which optional covers to consider, when to arrange them, and what can affect the cost.

Key Takeaways

• Employers’ liability insurance is normally required once you become an employer, subject to exemptions.
• Other insurance depends on your risks, but clients, landlords, venues or professional bodies may require specific cover.
• Arrange relevant insurance before the activity that creates the risk rather than waiting for a problem to arise.
• Small business insurance doesn’t have a single price. Your work, turnover, limits, employees, and selected cover all affect the premium.

Is Business Insurance a Legal Requirement in the UK?

For most businesses, employers’ liability is the main mandatory business insurance if you employ staff, under the Employers’ Liability (Compulsory Insurance) Act of 1969. Motor insurance is also legally required if you use vehicles for business, including a personal vehicle used for work. Some regulated professions may also have professional indemnity requirements.

Most other business insurance types are chosen according to the risks you actually face. The right cover depends on whether you meet clients in person, give professional advice, sell products, hold customer data, or rely on premises and equipment.

Many businesses therefore carry more insurance than the law requires. A client may ask for public liability insurance before awarding work, a landlord may set insurance conditions for rented premises, and a regulator or professional body may require professional indemnity before you can practise.

That distinction matters because a policy can be optional under law but still required before you take on a contract, rent premises, or register with an organisation or association. Check these requirements before you start trading.

Employers’ Liability Insurance: The One Cover You Must Have

In Great Britain, you must normally arrange employers’ liability insurance as soon as you become an employer. It helps pay compensation if an employee is injured or becomes ill because of the work they do for you. The legal minimum is £5 million from an authorised insurer.

The requirement depends on the actual working relationship, not just the job title. It can also apply to apprentices and some temporary or training arrangements. Employers’ liability policies will usually cover unpaid work-experience students and people on training programmes, but you should check if the arrangement is unusual or long-term.

Family businesses can be exempt when all employees are close relatives, unless the business is incorporated as a limited company. A limited company with only one employee may also be exempt if that employee owns at least 50% of the issued shares.

As of 2026, you can be fined up to £2,500 for each day you don’t have suitable cover. Failing to display the certificate or show it to HSE inspectors when asked can lead to a further fine of up to £1,000.

At Westminster, employers’ liability is available as an optional addition to the combined policy.

The Main Types of Cover Explained

Before buying small business insurance, start by reviewing events that could cause serious losses. A consultant, a retailer and a tradesperson face different risks, so the same policy mix will not suit every new business. These are the most common covers to consider:

These definitions and examples are consistent with current UK government and ABI guidance on common business insurance types.

The first three covers mostly address claims related to customers, professional work, or products. For example, if a customer slips in your reception area, public liability insurance may be relevant. If a client alleges that your advice caused financial loss, professional indemnity insurance may apply. The policies might cover legal and compensation costs in valid claims.

A retailer may need stock cover if fire or theft damages goods held for sale. Equipment cover can help if essential tools or computers are lost or damaged. Cyber insurance may be relevant if customer data is exposed in a breach or your systems are hacked.

Which Cover Does Your Business Actually Need?

Choose business insurance by working backwards from how you operate. Ask what could go wrong, who could make a claim, and which assets or systems would be expensive to replace.

• Do you have employees? If yes, you most likely need employers’ liability insurance. Exemptions are possible.
• Do customers visit you, or do you work on their premises? Public liability insurance may be relevant if your work could injure a customer or damage their property. For example, a visitor could trip over a cable in your office, or you could accidentally damage a client’s premises.
• Do you give advice or provide professional services? Professional indemnity insurance may help if a client says an error, omission, or negligent advice caused them financial loss.
• Do you sell, supply, make, or install goods? Product liability may be relevant if a product you made, sold, supplied, or installed causes injury or property damage.
• Do you store customer information or rely on online systems? Cyber and data cover may be relevant if a data breach, cyberattack, or loss of digital data could lead to financial loss.
• Are you running a limited company? If you’re the company’s only employee and own at least 50% of its issued share capital, the employers’ liability exemption may apply.

Your business structure also affects what you need. A sole trader with no employees may not need employers’ liability but can still face claims from clients or the public and need professional indemnity or public liability insurance. A limited company with staff will usually need employers’ liability. An online business may add professional or cyber risks.

You may ask, “Do I need insurance to start a business from home?” Home insurance may not cover business stock, computers, or customer visits. Check your policy wording and tell your insurer how you use the property to avoid gaps in cover or problems if you need to make a claim. If you keep valuable stock or equipment at home, check that it is insured for business use.

How Much Does It Cost to Insure a New Business?

There is no standard insurance cost for a new business. Premiums depend on what you do, the level of risk, turnover, selected limits, number of people insured, claims history, and any extra sections you add.

Westminster Insurance currently offers business insurance cover from £9.97. That is a starting price, and your quote will depend on your business details and the cover you select.

ABI-commissioned research published in 2026 found that sole traders spent £250 to £499 annually across all insurance policies. Businesses with one to nine employees reported a median of £1,000 to £1,999 per year.

Higher-risk work and higher cover limits can also increase the premium. A small consultancy with no staff will usually be priced differently from a retailer with employees, stock, and customer-facing premises.

Compare cover details, not just price, including limits, exclusions and conditions. Adding cyber, equipment or personal accident cover can change the cost. Westminster policies are annual, with payment available monthly or yearly.

Frequently Asked Questions

When to Arrange Cover Before You Start Trading

To determine whether you need insurance to start a business, start with the legal requirements for your setup, then identify the risks created by your work, clients, products, premises, equipment, or data. Arrange each relevant small business insurance policy before that exposure begins.

If you plan to hire, get employers’ liability. Depending on the operations, you may also need motor or sector-specific insurance.

Get a quick online quote to see the available cover options and details you need to know before your trade begins.

Westminster Insurance Ltd. is authorised and regulated by the Financial Conduct Authority. Registration number: 439023.

The post Insurance to Start a Business: A UK Guide for New Owners appeared first on Westminster Insurance.

This guide explains which costs you can claim, how actual and simplified expenses differ, what limits apply, and which records you should keep before completing your Self Assessment tax return.

Key Takeaways

• Eligible expenses for self-employed work reduce taxable profit, so you pay income tax only on the remaining amount.
• You can only claim business expenses incurred wholly and exclusively for running your trade.
• For certain costs, you can choose between actual expenses and HMRC’s simplified expenses.
• The £1,000 trading allowance can replace expense claims, but you cannot use both for the same income.
• Keep accurate records and supporting evidence for at least five years after the relevant Self Assessment filing deadline.

What Counts as an Allowable Expense?

An allowable expense is a cost you deduct from business income before calculating taxable profit and income tax. To qualify, the cost must be incurred wholly and exclusively for your trade.

If a purchase has both personal and business uses, you can claim only the business portion. Suppose your annual phone bills total £600 and calls and data used for work account for 60%. You could claim £360, but not the full bill. Keep the calculation in your records so you can explain how you arrived at the figure if HMRC asks.

Before you claim allowable expenses, compare them with the £1,000 trading allowance. This tax-free allowance can be deducted from gross trading income rather than from itemised costs.

You cannot use the allowance and claim business expenses against the same income. If your actual costs exceed £1,000, claiming them may reduce taxable profit more; if they are lower, the allowance may be more beneficial.

Most sole traders now use cash basis accounting by default, recording income when received and costs when paid. You can opt for traditional accounting, which records income and expenses when invoiced or billed. Some rules, including those for capital purchases and bad debts, differ between the two methods.

Allowable Expenses List for the Self-Employed

Most costs associated with running your trade can be deducted before calculating taxable profit. However, you should include only the amounts relating to business use. According to HM Revenue and Customs, the self-employed allowable expenses list comprises the following categories:

Note that bad debts can be claimed only if you use traditional accounting and previously included the income in turnover. They are not deductible under cash-basis accounting because unpaid customer invoices are not recorded as income. The debt must also be genuinely irrecoverable rather than merely overdue.

Working From Home: What You Can Claim

You can include home office costs in your self-employed expenses if you regularly work from home. You can use either actual costs or HMRC’s simplified expenses, but the same household costs can’t be claimed twice. The better method depends on your working pattern and the size of your bills.

Under the actual cost method, calculate a reasonable business portion of utility bills, such as heating, electricity and water, plus council tax, mortgage interest or rent. You can divide bills by the number of rooms, then adjust them based on how much time each room is used for work. If one of five rooms is used only for business, the starting share is 20%. If it also has personal use, reduce the claim accordingly.

Alternatively, simplified expenses provide a monthly flat rate based on hours worked from home: £10 for 25–50 hours, £18 for 51–100 hours and £26 for 101 hours or more. The flat rate covers general home running costs but not telephone or internet. Calculate the business portion of your phone bills and broadband separately.

Whichever method you choose, keep bills, calculations and notes explaining your allocation. This evidence supports the figures when you claim allowable expenses and helps you answer questions if HMRC reviews your return. Apply the same reasonable approach consistently throughout the tax year.

Claiming Car and Mileage Costs

You can include eligible vehicle use in your self-employed expenses through either simplified mileage or actual costs. For the 2026/27 tax year, the simplified flat rate for cars and goods vehicles is 55p per business mile for the first 10,000 miles and 25p thereafter.

To claim business travel expenses, keep a mileage log showing the date, destination, business purpose, and distance for each journey. The rate already accounts for fuel, servicing, repairs, vehicle insurance and depreciation, so you can’t claim these running costs separately for the same vehicle.

With the actual cost method, record fuel, repairs, insurance and other running costs, then claim only the business-use share. You may also claim capital allowances on the vehicle’s purchase cost where applicable. This method requires more detailed records but may suit an expensive car used mainly for business.

Once you choose simplified mileage or capital allowances for a particular vehicle, you must continue using that method while the vehicle remains in the business. Personal journeys, such as travelling between your home and workplace, don’t qualify. Trips to clients or temporary locations may be claimed.

Capital Allowances vs Allowable Expenses

The main difference between these two tax relief types is that capital allowances cover your long-term assets, not day-to-day expenses. Here’s a detailed comparison:

Under cash basis accounting, most capital expenses are treated as allowable business expenses rather than capital allowances, except for purchasing cars. Purchases of land and buildings can’t be deducted as ordinary expenses.

What You Cannot Claim

The following costs typically cannot be deducted from taxable profit as self-employed allowable expenses:

• Client entertainment, including meals, hospitality and event tickets
• Your own salary or drawings from the business
• Ordinary clothing that is not a uniform, costume or protective clothing
• Personal travel and ordinary commuting
• Fines and penalties
• Loan or mortgage principal repayments (qualifying business interest may be deductible)
• Private meals, except allowable subsistence on qualifying business trips.

These are not allowable business expenses because they are personal, punitive or capital in nature rather than incurred wholly and exclusively for your trade. A payment from a business account is not automatically deductible; the purpose matters more than the payment method.

Keep personal and business portions of mixed bills separate. Before you claim business expenses, double-check any uncertain costs rather than assuming they qualify.

How to Claim Expenses on Your Self Assessment Return

Claiming expenses for self-employed work through Self Assessment involves a few checks rather than submitting each receipt separately. Good records make the process easier if figures are questioned later.

1. Keep receipts, invoices, bank statements and digital confirmations for every business cost. You don’t need to attach them to your tax return, but HMRC may request proof.
2. Group your deductible costs by category, then remove personal amounts from mixed-use bills.
3. Enter category totals in the relevant self-employment fields. If you claim allowable expenses, do not also deduct the trading allowance against the same income.
4. Compare figures with your records, correct errors, and submit your online tax return by 31 January following the end of the tax year.

For example, with £60,000 in trading income and £5,000 in allowable business expenses, taxable profit is £55,000. After the £12,570 Personal Allowance, taxable income is £42,430. The actual tax saving depends on your tax rate and circumstances.

Making Tax Digital for Income Tax: What Changed from April 2026

HMRC used 2024/25 returns to identify who had to use Making Tax Digital for Income Tax (MTD) from 6 April 2026. It’s now required for sole traders and landlords with more than £50,000 in combined gross self-employment and property income.

You must use compatible software to keep digital records and submit quarterly updates. If you run multiple businesses, keep separate records and send a separate update for each. These updates don’t replace your final annual tax return.

MTD requires digital transaction records for income and expenditure, but you should still retain receipts, invoices, or copies as supporting evidence. Not all paper documents need to be scanned. The rules for self-employed expenses and business-use apportionment remain unchanged.

Frequently Asked Questions

Can I Claim Expenses Without Receipts?

Yes, you don’t need to submit receipts, but you must be able to support the expense with evidence. HMRC can ask for proof of self-employed allowable expenses. Bank statements, invoices and electronic confirmations can help. When you claim business expenses, keep records for at least five years. Without proof, HMRC may disallow it.

How Far Back Can I Claim Expenses?

You normally claim self-employed allowable expenses in the tax return covering the accounting period in which you paid or incurred them, depending on your accounting method. If you omit eligible costs, you can usually amend the return within 12 months of its filing deadline. For 2024/25, amendments are accepted until 31 January 2027.

Is Business Insurance an Allowable Expense?

Yes, business insurance premiums incurred solely for your trade generally qualify as self-employed allowable expenses. Examples include Professional Indemnity Insurance, Public Liability Insurance, employers’ liability cover, and premises or equipment insurance. Personal life or private health policies don’t qualify. For vehicle insurance, claim only the business portion, unless simplified mileage rates already cover it.

What to Check Before Your Next Self Assessment Deadline

First, compare the £1,000 trading allowance with actual costs; you can’t use both against the same income. Review each category against HMRC’s deduction rules and remove private portions. 

When you claim business expenses, check totals against receipts, invoices and bank statements. Compare actual and simplified home-working costs, then use the more suitable calculation. For vehicles, continue with your chosen method.

Keep digital records in compatible software for MTD, but you don’t need to scan every paper receipt. Finally, review your self-employed expenses and submission dates. If anything is unclear, ask an accountant before filing.

The post Allowable Expenses for the Self-Employed: What You Can Claim appeared first on Westminster Insurance.