Can I Claim Microsoft 365 as a Business Expense?
Yes - Microsoft 365 Business subscriptions are fully deductible.
What HMRC Says
Business software subscriptions are allowable expenses.
When You Can Claim
- Microsoft 365 Business Basic/Standard/Premium
- Office apps for business use
- Teams for business communication
- OneDrive for Business storage
When You Cannot Claim
- Personal Microsoft 365 Home subscription (unless wholly business)
Understanding Microsoft 365 Expenses
Microsoft 365 Business subscriptions are straightforward deductible expenses for UK limited companies. Whether you use Microsoft 365 Business Basic, Standard, or Premium, the monthly or annual subscription fee is deducted from your company's taxable profits in the period it is incurred. This is one of the most common software expenses across businesses of all sizes.
The business versions of Microsoft 365 include Word, Excel, PowerPoint, Outlook, Teams, OneDrive for Business, and SharePoint. All are legitimate business tools, and the subscription cost covers both the software licences and cloud services. There is no need to separate the software element from the cloud storage element for accounting purposes. The full subscription fee is a single revenue expense.
The critical distinction is between Microsoft 365 Business plans and Microsoft 365 Home or Personal plans. If your company purchases a Business subscription (Business Basic at £4.60/month, Business Standard at £9.40/month, or Business Premium at £16.60/month per user as of 2025/26), the entire cost is deductible. If you have a personal Microsoft 365 Family or Personal subscription and use it partly for work, you can only claim the business-use proportion, which is harder to substantiate. The clean approach is to have your company subscribe to a Business plan.
VAT-registered companies should note that Microsoft bills UK Business subscribers through Microsoft Ireland Operations Limited. This means the reverse charge mechanism applies. You account for 20% VAT on your return and simultaneously reclaim it, resulting in no net VAT cost. Your bookkeeper needs to process Microsoft 365 invoices under reverse charge rather than treating them as UK standard-rated purchases.
If your company pays for Microsoft 365 licences for employees, this is also deductible. There is no benefit in kind charge on employees for business software provided to enable them to do their job, even if they also use the apps on personal devices. The exemption for computer equipment and software provided by employers for business use covers this scenario.
Real-World Examples
Solo director with Microsoft 365 Business Standard
A company director subscribes to Microsoft 365 Business Standard at £9.40 per month. The annual cost of £112.80 is deducted from company profits. She uses Word for proposals, Excel for financial tracking, and Teams for client calls. Reverse charge VAT is accounted for on her quarterly return.
Small team with multiple licences
An engineering consultancy with four employees subscribes to Microsoft 365 Business Premium at £16.60 per user per month. The total annual cost of £796.80 is deductible as a software expense. The premium tier includes advanced security features, which the company needs for client data protection.
Upgrading from personal to business subscription
A director who previously used a personal Microsoft 365 subscription switches to a Business Standard plan paid by his company. The old personal subscription was only partially deductible, but the new business subscription is 100% deductible and provides a cleaner audit trail.
Common Mistakes to Avoid
- Claiming a Microsoft 365 Home or Family subscription as a full business expense. These personal plans include licences for family members and personal OneDrive storage. Only the business-use proportion is deductible, and it is difficult to apportion. Switch to a Business plan instead.
- Not applying reverse charge VAT on Microsoft 365 invoices. Microsoft bills through its Irish entity, and UK VAT-registered companies must account for this correctly on their VAT return.
- Paying for Microsoft 365 from a personal account and forgetting to expense it to the company. If you pay personally, submit an expense claim so the company gets the deduction and reimburses you.
- Not keeping Microsoft 365 invoices. They are available in the Microsoft 365 admin centre under Billing. Download them monthly or annually for your company's records.
Frequently Asked Questions
Can I claim Microsoft 365 Personal through my limited company?
Only the business-use proportion would be deductible, and this is hard to calculate precisely. The better approach is for your company to subscribe to Microsoft 365 Business Basic, Standard, or Premium, which is 100% deductible and designed for business use.
Is there a BIK if employees use Microsoft 365 on personal devices?
No. Software provided by an employer for business purposes does not create a benefit in kind, even if the employee installs the apps on their personal phone, tablet, or home computer. The exemption covers business software provided to enable the employee to do their job.
Can I claim Microsoft Copilot AI through my company?
Yes. The Microsoft 365 Copilot add-on, priced at £24.70 per user per month, is a deductible business software expense. As an AI productivity tool integrated into the Office suite, it falls squarely within allowable software subscriptions for business use.
How do I handle VAT on Microsoft 365?
Microsoft invoices UK businesses through Microsoft Ireland Operations Limited. If you are VAT-registered, apply the reverse charge: add 20% output tax and reclaim 20% input tax on your VAT return. The net effect is zero. If you are not VAT-registered, the implicit VAT is simply an additional cost.
Can I switch from Google Workspace to Microsoft 365 mid-year?
Yes. Both are deductible software subscriptions. If you run both simultaneously during a transition period, both costs are deductible. There are no tax implications from switching providers. Simply expense whichever service you are paying for in each period.
Source: HMRC Business Income Manual BIM35800 - Software costs; HMRC Employment Income Manual EIM21611 - Computer equipment and software
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