Can I claim expenses for business software and cloud tools?

Can I claim expenses for business software and cloud tools?

Business today runs on software. Whether you’re a freelancer juggling client work, a startup building a product, or an established company managing teams across multiple locations, you likely pay for a mix of apps, subscriptions, and cloud services to keep things moving. That leads to a very practical question: can you claim those costs as business expenses?

In most situations, the answer is yes—if the software or cloud tool is purchased wholly and exclusively for business purposes, and you can show a clear connection between the cost and your business activity. But the details matter. Different business structures treat deductions differently, mixed personal and business use requires apportionment, and some “software” costs may be treated as capital expenditure rather than a straightforward running cost depending on the nature of what you’re buying.

This article breaks down how business software and cloud tools are commonly treated for expense claims, what typically qualifies, how to handle personal use, what records you should keep, and the common traps that cause problems. It is a general guide and not a substitute for professional advice on your particular circumstances, but it will give you a practical framework for thinking about software costs in a tax-smart way.

What counts as “business software” and “cloud tools”?

It helps to define what we’re talking about. “Business software” can include everything from accounting packages to design tools. “Cloud tools” usually refers to software-as-a-service (SaaS) subscriptions and online services delivered over the internet. In practice, the lines overlap, because most modern tools are cloud-based subscriptions rather than one-time purchases.

Common examples include:

• Accounting and bookkeeping software, invoicing systems, payroll platforms, and expense tracking apps.

• Project management tools, time tracking software, team collaboration platforms, and internal knowledge bases.

• Cloud storage and backup services, file-sharing tools, password managers, and security products.

• Customer relationship management (CRM) systems, email marketing tools, customer support desks, and analytics platforms.

• Design, video editing, and creative suites; development tools; code repositories; hosting and deployment services.

• Communication services such as conferencing platforms, business phone systems, and business messaging apps.

• AI productivity tools, transcription services, automated scheduling systems, and document signing platforms.

Many of these are recurring subscriptions. Others are usage-based services (for example, cloud compute or data storage billed per hour or per gigabyte). Some are paid annually, some monthly, some on multi-year contracts. The structure of the payment doesn’t change the core principle: the question is whether the expense is incurred for the purpose of running the business.

The basic principle: business purpose and “wholly and exclusively”

Most tax systems share a basic idea: to deduct a business cost, it must be incurred for business purposes, not personal benefit. In some jurisdictions—particularly for sole traders and partnerships—the language often used is “wholly and exclusively” for the purposes of the trade. For companies, there is often a similar “for the purpose of the business” or “wholly and exclusively” style test in corporate tax rules.

In plain terms, a software cost is typically deductible if:

• You bought it to run, manage, or grow your business; and

• There’s a real business need for it; and

• Any personal benefit is incidental, or you properly separate and apportion the cost between business and personal use.

Software is usually easier to justify than many other expenses because its function is typically obvious. If you use an accounting package to issue invoices and reconcile bank transactions, that is clearly business-related. If you subscribe to a cloud backup service because you must protect client files, that is clearly business-related. But when the same tool is also used personally—like a cloud storage plan for family photos alongside business documents—you need to be more careful and potentially claim only the business portion.

Expense vs capital: why it matters

Not all costs are treated the same. A key distinction is between an expense (a day-to-day running cost) and capital expenditure (a longer-term investment in the business). This matters because expenses are typically deducted in the period they are incurred, while capital costs may be deducted over time through depreciation, amortisation, or capital allowances—depending on your local rules.

Many business software and cloud tools are subscriptions. Subscriptions are generally treated as revenue expenses because you pay for access over a period (monthly or annually), not ownership of a long-lived asset. For most SaaS subscriptions—like project management, email marketing, or cloud storage—deductibility is usually straightforward.

However, some software purchases can look more like capital items, for example:

• A large one-off payment for a perpetual software licence (you buy it once and keep using it).

• Custom software development where you pay a developer to build a tool you will use for years.

• Major upgrades or implementation projects that create a new system rather than maintaining an existing one.

Even then, many tax regimes have specific rules for software and certain intangible assets that can change the outcome. In some places, software might still be treated like an allowable expense if it’s purchased for business use and meets certain criteria; in others, it’s amortised. The important takeaway is this: subscriptions are usually “simple,” while large one-off or custom-build costs may require a different treatment.

Subscriptions: the most common and usually the simplest

If you pay monthly or annually for access to a cloud tool, you’re usually paying a routine business cost. This includes productivity suites, cloud storage, communications tools, and most online services. Typically, you can claim the cost as an expense in the period it relates to. That means a monthly subscription is generally claimed monthly (or as part of the yearly total depending on how you report), and an annual subscription is usually claimed over the year it covers.

A few practical points make this easier:

• Use a business bank account or business card for subscriptions so they’re easy to trace.

• Keep invoices that show the supplier name, date, amount, and what the service is.

• Ensure the account details and billing address are consistent and business-appropriate where possible.

If you prepay for a long period (for example, three years of a service), the tax treatment can be less straightforward. Many accounting practices treat prepaid expenses as allocated to the periods they cover rather than entirely in the year of payment. This is an accounting concept that often feeds into tax reporting, though the exact rule depends on your local framework. The key idea is matching: expense recognition aligned with the period you receive the service.

Usage-based cloud services: hosting, storage, compute, and APIs

Cloud bills are increasingly usage-based. You might pay for web hosting, server instances, bandwidth, database transactions, or third-party APIs. These costs are normally treated like utilities: you’re paying for consumption to run the business, so they are typically deductible as revenue expenses.

But cloud usage bills can get complicated fast. You may have multiple environments (development, staging, production), multiple teams, and multiple projects. That’s a commercial problem first, but it becomes a tax and bookkeeping problem too. Good practice includes:

• Tagging cloud resources by project or client where possible.

• Keeping detailed invoices and usage reports from the provider.

• Documenting how the cloud services relate to your business activities (especially if costs spike, or if you’re claiming large amounts).

For agencies or consultants, cloud services can sometimes be recharged to clients. If you’re billing clients for hosting or tools, the costs are still business expenses, but you’ll also have corresponding income. Your records should show both sides clearly, ideally by using separate “billable expenses” categories in your accounting system or by attaching client notes to the transactions.

Mixed personal and business use: how to apportion fairly

One of the biggest problem areas is mixed use. Many tools can be used both personally and for business. The general approach is that you should claim only the business portion of the cost. How you do that depends on the nature of the tool and what a reasonable method of allocation looks like.

Here are some common scenarios:

Cloud storage used for both business files and personal photos

If you pay for extra storage and use it for both personal and business, it may be reasonable to allocate the expense based on the proportion of storage used for business. Some people estimate based on folder size or usage reports. If that’s not practical, you could use a time-based or purpose-based estimate, but it should be defensible.

Productivity suite used partly for personal email and documents

If the plan is primarily for business but occasionally used personally, the personal benefit might be incidental. In that case, some businesses claim the whole cost, especially if the business usage is dominant and the tool is essential for work. But if the personal use is meaningful—such as family email accounts included in the plan—apportionment becomes more appropriate.

Design or video software used for a side business and hobby work

If you use creative software for both paid work and personal projects, claim the proportion linked to the business. A simple method could be to estimate based on hours used for business versus personal, backed by project logs, calendars, or time tracking where available.

AI tools used for both business tasks and personal curiosity

AI subscriptions are a newer example of mixed use. If you use an AI tool mainly to draft client materials, write code, brainstorm marketing, or produce business documents, that’s a strong business link. If you also use it for personal tasks, allocate as needed. Keeping a brief monthly note in your bookkeeping system about the percentage used for business can help show you made a considered judgment.

Whatever allocation method you use, the goal is reasonableness and consistency. Choose a method that makes sense for the tool, apply it consistently, and keep a short record of how you arrived at the split. If circumstances change—say you begin using a tool almost entirely for business—update your allocation.

Free trials, freemium plans, and “no cost” tools

If you don’t pay for a tool, you obviously can’t claim an expense for it. But free trials can create a bookkeeping trap: you sign up, the trial converts to a paid plan, and you forget about it. From an expense-claim perspective, the moment you’re charged is the moment it becomes a deductible cost (assuming it’s for business). From a practical perspective, it’s wise to:

• Review subscriptions regularly to ensure you’re not paying for unused tools.

• Cancel trials you don’t need before they convert.

• Keep a central list of tools, renewal dates, and who uses them in the business.

Freemium plans can also lead to mixed situations where you pay for one part of a platform (for example, additional seats or storage) while other parts are free. Your claim should reflect what you pay.

Bundles, suites, and multi-tool platforms

Many providers bundle services: a single subscription might include email, cloud storage, conferencing, and security features. If the whole bundle is used for business, the cost is generally straightforward. If part is personal, apportionment can get tricky because you can’t always separate the invoice line items.

In bundled cases, consider:

• Whether the plan was chosen primarily for business needs.

• Whether personal use is incidental or significant.

• Whether the provider offers separate plans that would isolate business use (and whether you actually chose those).

If you pay for a family plan because it’s cheaper per user and you’re using it for business too, you may need to claim only the portion relating to business users. For example, if you have five users and only two are business-related, it may be reasonable to claim two-fifths of the cost, adjusted if usage differs materially among users.

Tools bought for clients: pass-through costs and reimbursable expenses

Sometimes you buy software specifically for a client project—like a stock photo subscription, a landing page builder, a survey tool, or a temporary collaboration platform. There are two common ways this plays out:

• You absorb the cost as part of your pricing (the expense is deductible, and your income covers it).

• You recharge the client (the expense is still deductible, but the reimbursement is income).

If the client reimburses you exactly, it can feel like a “wash,” but it still needs to be recorded correctly. Otherwise, your accounts can understate both income and expenses, or you might accidentally claim an expense without recording the matching reimbursement.

If you’re buying tools on a client’s behalf and they pay the supplier directly, then you usually won’t have an expense to claim—because you didn’t incur the cost. If you pay it, you have an expense; if they pay it, they have an expense. The paper trail should reflect the reality of who paid and who contracted for the service.

What about software for training, courses, or certifications?

Not all “software” costs are tools you use to produce work. Sometimes you buy educational platforms, online learning subscriptions, coding challenge sites, or certification exam software. Whether these are deductible depends heavily on whether the training is to maintain or improve existing business skills versus acquiring an entirely new skill that changes the nature of your business.

Many tax systems treat training to update or maintain current skills as deductible, while training that prepares you to enter a new trade can be treated differently. If you’re claiming these sorts of costs, it’s particularly important to document the link to your current business activity. For example, “annual subscription to platform used to keep current with required software security updates for our service offering” is a clearer business link than “learning platform subscription.”

What records should you keep?

Good records make expense claims routine rather than stressful. For software and cloud tools, you should aim to keep:

• Supplier invoices or receipts showing the name of the product or service, the date, and the amount paid.

• Proof of payment, such as bank statements, card statements, or payment confirmations.

• Subscription terms if relevant, especially for annual or multi-year plans.

• Notes on business purpose if it’s not obvious from the tool name, or if the expense is unusually large.

• Evidence supporting any apportionment for mixed use (for example, a simple percentage calculation or a usage report).

In practice, the most useful habit is to attach the invoice to the transaction in your accounting software (if you use one) and write a short memo for anything that might look unclear later. The point of a memo is not to write an essay—it’s to create a quick explanation that makes sense months or years down the line.

Claiming software costs as a sole trader, partnership, or limited company

The broad principles are similar across structures—business purpose, reasonable allocation for mixed use, and proper records. But the mechanics can differ. Here’s a general overview of what tends to matter most in each structure.

Sole traders

If you’re self-employed, you’re usually claiming business expenses against your business income to calculate taxable profit. The “wholly and exclusively” concept is often central. That means if a software tool is used partly personally, you typically claim only the business proportion. Clear separation helps: a dedicated business account and business-only subscriptions reduce ambiguity.

Partnerships

Partnerships often follow similar principles to sole traders, but expenses may be paid by individual partners. If a partner pays personally for a tool used in the partnership business, the partnership accounts should still reflect the cost appropriately, often through partner expense claims or drawings adjustments. Good internal record-keeping prevents confusion and ensures expenses aren’t missed.

Limited companies

Companies can claim business expenses against profits, but there’s an additional wrinkle: expenses incurred personally by directors or employees may need to be reimbursed, recorded as an expense claim, or treated as a benefit depending on local rules and the nature of the cost. For example, if a director pays personally for a company tool and is not reimbursed, the accounting and tax treatment could be more complex than simply “deduct it.”

As a practical matter, companies often find it cleaner to have subscriptions in the company name, paid from company accounts, with clear internal approvals for who can add new tools and at what spending limits.

VAT or sales tax on software and cloud tools

Indirect tax is a common stumbling block for digital services. Depending on where you are and where the supplier is located, software subscriptions might be subject to VAT, GST, or sales tax, and the rules for cross-border digital services can be complex.

Key practical points include:

• Your invoice may show local tax, foreign tax, or no tax, depending on the supplier’s location and your business status.

• Some suppliers ask for a business tax ID to apply the correct tax treatment.

• If you are registered for VAT/GST, you may be able to reclaim input tax on eligible business expenses, subject to the usual rules.

If you operate internationally or buy from multiple countries, it’s worth getting professional advice or using a bookkeeping process that consistently captures tax on digital services. Even if you are not reclaiming, you still want the gross cost recorded properly.

Foreign currency subscriptions and exchange rate issues

Many cloud tools bill in foreign currencies, especially if you use providers based abroad. Your bank or card provider may also charge foreign transaction fees. Typically:

• The subscription cost is a deductible expense if it’s for business.

• Foreign transaction fees are often deductible as bank charges or finance costs (again, depending on local rules).

From a bookkeeping standpoint, record the cost in your home currency based on the amount actually charged, and keep the invoice that shows the original currency amount. If the invoice is in one currency but your card statement shows a different converted amount, your accounting system should reflect what you actually paid in home currency, with exchange differences handled according to your accounting method.

Implementation costs, setup fees, and onboarding services

Some software comes with extra costs: initial setup fees, onboarding, data migration, consulting, and training. Whether these are deductible expenses or capital items can depend on what they achieve. If the costs are simply to set up a subscription you will use, they are often treated as expenses. But if the costs relate to creating a long-term system or a significant asset-like capability, they may be treated differently.

A practical way to think about it is:

• Routine setup, training, and onboarding to get a tool working is often treated like an operating cost.

• Major system development, long-term customisation, or building proprietary software can look like capital expenditure.

The boundary can be fuzzy, especially for large ERP, CRM, or bespoke workflow systems. If you’re spending significant amounts, it’s worth getting advice so you don’t misclassify costs and create headaches later.

Apps and software on phones and tablets

Mobile apps are just software in a different wrapper. If you pay for business apps—scanners, mileage trackers, communication apps, scheduling tools—you can typically claim them if they’re for business. Mixed-use issues can be more common on personal devices, especially if you have a single app store account for both personal and business purchases.

If you’re using a personal phone for business and buying apps that you also use personally, consider:

• Keeping app purchases for business separate (for example, using a dedicated business account where possible).

• Documenting business use, especially for subscriptions that could appear “personal” to an outsider.

• Claiming a reasonable proportion if the app has meaningful personal use.

Some businesses choose to provide devices to employees and keep the subscriptions on company-managed accounts to reduce complexity. Others are happy with reimbursement processes. The best approach depends on team size and how important clean separation is to you.

Software bundled with hardware or telecom services

Sometimes software is included with hardware or telecom contracts—for example, a security suite bundled with a laptop, a cloud backup bundled with an internet service, or conferencing credits included with a phone plan. If you pay a single fee for the bundle, you usually claim the business portion of the entire service, unless the bundle can be itemised and separated.

The challenge is that bundles can disguise personal use. If a home internet plan includes a cloud service and you claim the entire cost as business while also using it heavily at home, you may need to apportion. The same logic that applies to internet and phone costs often applies to bundled digital services: claim the portion that reflects business use.

Common mistakes that cause problems

Claiming software expenses is usually straightforward, but a few mistakes crop up repeatedly.

1) Claiming personal subscriptions “because I sometimes use them for business”

Occasional business use doesn’t automatically make an expense deductible in full. If a streaming subscription is used to watch ads for inspiration or a personal cloud plan occasionally stores business documents, you still need to consider whether the expense was incurred primarily for business and whether a split is appropriate.

2) No invoices or unclear receipts

Card statements alone often don’t show enough detail. Many providers make invoices available in your account portal. Download them regularly, or use accounting software integrations that capture invoices automatically.

3) Forgetting to apportion mixed-use tools

When a tool has both personal and business benefit, allocate it. Even a simple 70/30 split with a short note is better than claiming everything without thought.

4) Duplicated subscriptions across team members

It’s easy for multiple people to expense the same tool or for a company to pay for overlapping services. This is more of a cost control issue than a tax rule issue, but it affects claims and profitability. Periodic subscription audits help.

5) Misclassifying big one-off software or development projects

If you spend a large amount building custom software or buying a perpetual licence, treating it as a normal subscription expense may be incorrect. The fix can be painful later, so classify correctly from the start.

Practical steps to make software expense claims clean and defensible

Here’s a simple process that works for many businesses:

1) Maintain a subscription register. List the tool name, purpose, monthly/annual cost, renewal date, and owner.

2) Pay from business accounts when possible. This keeps the audit trail clean.

3) Keep invoices automatically. Use integrations, email rules, or a shared folder where invoices are stored.

4) Write short transaction notes. Especially for tools with ambiguous names or mixed use.

5) Review quarterly. Cancel unused subscriptions, check for duplicates, and update any allocation percentages.

6) Separate personal use. Where practical, use business-only accounts and avoid family plans for business tools.

These steps aren’t just about tax compliance. They also reduce waste and help you understand your true operating costs—particularly important if you’re pricing services, pitching for funding, or planning hiring.

Frequently asked questions

Can I claim software used to find clients, like marketing tools?

If the tool is used for business marketing—email campaigns, CRM, analytics, landing pages—then it is typically a business expense. Keep invoices and, if the tool name is generic, add a short note describing its purpose.

Can I claim software if I’m not profitable yet?

In many systems, you can claim legitimate business expenses even if the business is in its early stages or making a loss, as long as the activity is genuinely a business and not merely a hobby. How losses are treated can vary widely, so record-keeping and clear evidence of commercial intent matter.

Can I claim software used at home?

Yes, if it’s used for business. Working from home doesn’t reduce deductibility. The bigger issue is mixed use—home use often implies personal use too. If it’s business-only (for example, a client management system you only use for work), claim it. If it’s mixed, allocate.

Can I claim the cost of plugins, templates, and add-ons?

Generally, yes, if they are bought for business use—such as website themes, design templates, paid plugins, or extensions. These are typically treated as routine costs, though very large one-off purchases might need review depending on local rules.

What if I pay annually instead of monthly?

Annual payments are still business expenses if the tool is used for business. Depending on your accounting method, you may treat the cost as relating to the year of coverage rather than the exact payment date, especially for larger amounts.

Can I claim software for a side hustle while I’m employed?

If you have a genuine business or self-employment activity separate from your job, then software costs for that business can often be claimed against that business income, subject to the usual rules. Keep the separation clear: avoid mixing employer-provided tools and your own business tools, and document what each subscription supports.

Conclusion: yes, usually—but make it tidy

Most businesses can claim expenses for business software and cloud tools, especially subscriptions and usage-based services that are clearly connected to day-to-day operations. The main things to get right are business purpose, mixed-use allocation, correct classification for bigger one-off purchases, and solid record-keeping.

If you keep invoices, pay through business accounts, and make reasonable decisions about apportionment, software expenses become one of the cleanest categories in your books. And if you’re spending significant amounts on custom development or enterprise systems, it’s worth getting tailored advice so you treat the costs correctly from the start.

Ultimately, software is not just a cost to claim—it’s part of how your business delivers value. Handle it thoughtfully, and you’ll get both tax clarity and operational clarity at the same time.