Can you claim ChatGPT, Claude or Copilot as a business expense? The rules for a sole trader, a limited company and VAT

Yes. A subscription to an AI tool that you use only for the business is an allowable expense for a sole trader and a deductible running cost for a limited company. GOV.UK's list of office costs a self-employed person can claim includes "computer software if your business makes regular payments to renew the licence", and a £20-a-month subscription, £240 a year, saves a basic-rate sole trader £62.40 in tax and National Insurance in the 2026 to 2027 tax year.

Neither GOV.UK nor the HMRC manual names any AI tool. The rules below are the ones for software and for business costs in general, read on 1 October 2026.

Sole traders: the rule

GOV.UK's page on office costs for the self-employed lists software paid for by regular licence payments, however long you use it. A monthly or yearly AI plan is that kind of payment.

Behind that sits section 34 of the Income Tax (Trading and Other Income) Act 2005. HMRC's Business Income Manual, at BIM37007, says an expense is deductible only if it is incurred "wholly and exclusively" for the trade, and makes two points that matter here:

• If a definite part of a cost is for the business, that part can be claimed. GOV.UK's own example is a £200 phone bill of which £70 is business calls: you claim £70.
• If one payment has a business reason and a private reason that cannot be separated, HMRC's guidance is that none of it is allowed.

So a plan used only for the business is claimed in full. A plan that is also used privately needs a fair split, written down, and you claim only the business share.

The £1,000 trading allowance

GOV.UK says you cannot claim expenses if you use the £1,000 tax-free trading allowance. The allowance replaces your actual expenses with a flat deduction of up to £1,000.

If all your business costs for the year come to less than £1,000, the allowance gives the bigger deduction and the subscription is not claimed separately. If they come to more, claim actual expenses and include it.

Worked example: a sole trader

A self-employed surveyor has a turnover of £40,000 and business costs of £3,000, including an AI plan at £20 a month. ChatGPT Plus was £20 a month on OpenAI's UK pricing page on 1 October 2026; the page does not say whether that includes VAT.

• Subscription for the year: 12 × £20 = £240.
• Costs are over £1,000, so she claims actual expenses. Taxable profit: £40,000 − £3,000 = £37,000.
• At that profit she pays 20% Income Tax (the bands differ in Scotland) and 6% Class 4 National Insurance.
• Saved by the subscription: £240 × 20% = £48 of tax and £240 × 6% = £14.40 of National Insurance, £62.40 in all.
• Cost after tax: £240 − £62.40 = £177.60.

She is not VAT registered, so any VAT on the invoice is part of the £240 and cannot be reclaimed. Whether a plan for individuals suits customer details is a separate question: see ChatGPT for quotes, invoices and customer emails.

Limited companies: the rule

GOV.UK says a limited company can deduct revenue expenses, the day-to-day and usually recurring costs of running the business, when they are incurred wholly for a business purpose. BIM35810 says regular payments for a software licence are deductible unless they are instalments of a lump sum.

Buy the plan in the company's name and keep every invoice: GOV.UK tells companies to keep accurate and detailed business records.

Worked example: a limited company

A five-person company buys five ChatGPT Business seats at £15 a seat a month, billed annually (OpenAI's UK pricing page, 1 October 2026; the page does not say whether VAT is included). Its profit is under £50,000, so it pays Corporation Tax at the 19% small profits rate.

• Subscription for the year: 5 × £15 × 12 = £900.
• Corporation Tax saved: £900 × 19% = £171.
• Cost after tax: £900 − £171 = £729.

VAT when the supplier is abroad

The big AI vendors are American companies, and we could not confirm from their public pages which entity bills a UK customer. What you do depends on what the invoice shows and whether you are VAT registered.

The reverse charge is set out in section 5 of HMRC's VAT Notice 741A. Where a business customer in the UK buys a service from a supplier that belongs outside the UK, the customer acts as both supplier and buyer. If the £900 in the example were invoiced with no VAT, the VAT return would show £900 × 20% = £180 in box 1, the same £180 in box 4, and £900 in each of boxes 6 and 7. HMRC says that if you can reclaim the input tax in full, the reverse charge has no net cost, and that it applies even if the overseas supplier has a UK VAT number.

If you are not VAT registered, expect to be charged VAT. HMRC's guidance on digital services says a business outside the UK that supplies them to UK consumers must register and charge UK VAT, and Notice 741A says a customer who cannot give a VAT number or other evidence of being in business should be treated as a consumer.

The threshold point: paragraph 5.7 of the notice says an unregistered business that receives services from overseas suppliers on business terms must add their value to its own taxable sales when checking the £90,000 registration threshold. Our guide to the rolling 12-month VAT test shows the check.

On the Flat Rate Scheme you cannot reclaim VAT on a purchase like this.

What the vendors' own pages say about tax

• Microsoft's UK pages state that each price "does not include VAT". The yearly figures are in our Microsoft 365 Copilot cost guide.
• Anthropic's pricing page, once its UK version has loaded, shows pounds and the line "Prices include 20% VAT". Five Team seats at £18 are £1,080 a year, of which £180 is VAT (£1,080 ÷ 1.2 = £900). Its help pages say tax follows the billing address and that a Team plan has a field for a VAT number.
• OpenAI's UK pricing page showed pounds and did not mention VAT. Its help page says a VAT number can be added in billing settings, and that tax may be charged if the number proves invalid.

Enter your VAT number where the vendor offers a field, then read the first invoice to see which column of the table applies.

Overlyft is an AI agency that sets up AI office assistants for ten trades: they are set up in the firm's own office for a fixed price agreed after an audit, the firm pays Anthropic directly for its own Claude plan, and a person approves anything that goes to a customer.

This is general information, not tax advice. An accountant can confirm how the rules apply to your figures.