How to record business expenses in FreeAgent
Which costs go in as out-of-pocket expenses and which you explain from the bank. How to attach receipts with Smart Capture, and how to avoid recording the same cost twice.
By In Front Accounting, ACCA-qualified accountants · Published 21 October 2026
The short answer
- Paid from the business bank account? Don't create an expense. Explain the bank transaction when it arrives in FreeAgent, and attach the receipt.
- Paid personally for the business? Record it as an out-of-pocket expense under Expenses, against the person who paid.
- Owed but not paid yet? That's usually a bill, not an expense.
- Each cost should be recorded once. Recording it as an expense and explaining the same bank payment as a cost doubles it.
Business bank payment or out-of-pocket expense?
| What happened | Record it in FreeAgent as |
|---|---|
| Company card paid for printer ink | An explanation of that bank transaction (Payment, in the right category) |
| A director paid for train tickets on a personal card | An out-of-pocket expense under that director's name |
| The company later repays the director | An explanation of the repayment bank transaction (FreeAgent calls it an expense repayment) |
| A supplier invoice due in 30 days | A bill, then the payment is explained against it |
Step by step: add an out-of-pocket expense
- Select Expenses at the top of the screen and choose the person who paid. If you're the only user, FreeAgent selects you automatically.
- Select Add New, then Expense.
- To use the receipt: in the Attachment section choose Upload to Smart Capture and upload it. Then use the three dots next to the total and choose Create expense. Smart Capture tries to fill in the date and total and suggest a category.
- Check the date, amount, category and VAT, fill in anything missing, then select Create New Expense.
- On the mobile app: tap + on the home screen, choose Expense, then Smart Capture to photograph the receipt, and Save.
Receipts and VAT
If you're VAT registered, you can generally only reclaim VAT when you hold a valid VAT invoice or receipt from a VAT-registered supplier. A card-machine slip showing only the total usually isn't enough. If there's no VAT on the receipt, or the supplier isn't VAT registered, record the cost without VAT.
For business bank payments, attach the receipt to the bank explanation. Smart Capture can do this automatically when it finds a matching payment; see our Smart Capture receipts guide.
Directors' expenses and personal spending
In a limited company, the company and the director are separate. A cost the director pays personally for the company is an out-of-pocket expense the company owes back to them. Personal spending paid from the company account is not a business cost. Don't put it in a cost category; FreeAgent has options such as Money Paid to User for this.
Whether something is allowable, and how it affects the director's loan account, depends on the facts. If in doubt, ask your accountant before categorising it. See our director's loan account guide for background.
Avoiding double entries
- Don't create an out-of-pocket expense for something the company card paid. Explain the bank payment instead.
- When the company repays a director, explain that repayment against the expense rather than as a new cost.
- If one receipt was captured twice in Smart Capture, use only one copy.
- Before filing VAT, scan the expenses list for the same supplier, date and amount appearing twice.
Would you rather someone else checked your expenses?
We review expenses, receipts and VAT as part of our FreeAgent accountant service, for a fixed monthly fee. You can also send us a message.
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Common Questions
Should I add an expense for something I paid with the company card?
No. Explain the bank transaction instead when it's imported, and attach the receipt. Adding an expense as well records the cost twice.
What is an out-of-pocket expense in FreeAgent?
A business cost paid with personal money, such as a director's own card. The company then owes that person the money back.
How do I record repaying a director's expenses?
When the repayment leaves the business bank account, explain that bank transaction as the expense repayment to that person, so it clears what they're owed rather than adding a new cost.
Can I reclaim VAT without a receipt?
Generally you need a valid VAT invoice or receipt to reclaim VAT. Without one, record the cost without VAT and ask your accountant about unusual cases.
Last reviewed 21 October 2026. Steps follow FreeAgent's own help articles at the time of writing; menu names and access levels can change. Sources: FreeAgent: add an out-of-pocket expense, add an expense on mobile, introduction to expenses and mileage. General guidance, not advice on your specific circumstances.