Operating expense: definition, examples & OPEX vs CAPEX

Operating expenses, often shortened to OPEX, are the everyday costs of running a business, things like rent, utilities, software, salaries, marketing and insurance. The more you spend on them, the less profit you keep, so tracking them closely protects your margins and cash flow.

This guide covers what operating expenses are, examples for UK businesses, how to calculate them, the operating expense ratio, OPEX vs CAPEX, and a checklist to track your costs.

If your business pays overseas suppliers or contractors, Wise Business lets you make international payments with low, transparent fees* and the mid-market exchange rate, giving you a clearer view of those costs.

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What are operating expenses?

Operating expenses, often shortened to OPEX, are the day-to-day costs a business pays to keep running. They can include things like rent, utilities, software, salaries, marketing, insurance and professional fees.

These are the running costs of doing business, and they appear on the profit and loss account, where they reduce your revenue to show your operating profit.¹,²

Operating expenses are different from the direct costs of producing goods or services, known as cost of sales, and from capital spending on longer-term assets, known as CAPEX.

Operating expenses examples

Operating expenses cover a wide range of everyday business costs. The table below groups common operating expenses examples by category to show what typically counts as OPEX for a UK business.

GOV.UK's guidance on expenses for self-employed people covers similar categories, including office, property and equipment, travel, staff, reselling goods, legal and financial costs, marketing, subscriptions and training.²

Whether a cost is allowable for tax purposes depends on your business structure, the type of cost and how it is used. Not every expense listed here is automatically tax-deductible for every business, so check HMRC guidance or speak to an accountant if you are unsure. For example, business travel costs can usually be claimed, but everyday commuting cannot.

OPEX vs CAPEX: what's the difference?

The main difference between OPEX and CAPEX is timing and purpose. Operating expenses (OPEX) are the ongoing, day-to-day costs of running your business. Capital expenses (CAPEX) are one-off investments in longer-term assets, such as equipment, machinery, vehicles or fixtures, that your business will use for years.

The two are also treated differently for tax. Day-to-day running costs may be claimed as allowable expenses, while larger assets you keep to use in the business, known as plant and machinery, may instead qualify for capital allowances.³,⁴

A practical example: a monthly software subscription is usually an operating expense. But buying a laptop you will use in the business for several years may be treated as equipment or a capital asset, depending on your accounting method and business structure. Because the classification affects how and when you can claim a cost, it is worth checking GOV.UK guidance or speaking to an accountant if you are unsure.

How to calculate operating expenses

To calculate your operating expenses, add up all the day-to-day costs of running your business over a set period. The operating expenses formula is:

Operating expenses = rent + utilities + salaries + marketing + software + insurance + other day-to-day business costs

Here is a simple example for a business working out its monthly operating expenses:

Adding these together gives the total:

£1,500 + £300 + £250 + £800 + £150 + £200 + £6,000 = £9,200

Track your operating expenses over a consistent period, such as monthly, quarterly or annually, so you can compare them fairly over time. These costs appear on your profit and loss account, which shows your sales, running costs and profit or loss over the financial year.⁵

Once you know your operating expenses, you can work out your operating profit margin to see how efficiently your business turns revenue into profit.

Operating expense ratio

The operating expense ratio (OER) shows how much of your revenue goes on operating expenses, which is a useful measure of how efficiently your business manages its costs.⁶

The operating expense ratio formula is:

Using the £9,200 of operating expenses from the example above, against revenue of £25,000:

This means the business spends 36.8% of its revenue on operating expenses during the period.

A lower ratio may suggest tighter cost control, but it is not always better in isolation. Some businesses deliberately spend more on staff, marketing or systems to support growth. The most useful approach is to compare the ratio over time and against similar businesses in your sector, rather than treating a single figure as good or bad.

Operating expenses checklist for UK businesses

Use this checklist as a starting point when reviewing your monthly or quarterly operating expenses. It groups common business expenses UK companies typically pay, so you can spot anything you have missed.

Premises and utilities

• Rent or mortgage interest where relevant
• Business rates
• Electricity, gas and water
• Internet and phone
• Cleaning and maintenance

People and payroll

• Salaries and wages
• Employer National Insurance
• Pension contributions
• Recruitment fees
• Training costs

Software and admin

• Accounting software
• Project management tools
• CRM or sales tools
• Payment processing fees
• Bank charges
• Office supplies

Sales and marketing

• Advertising
• Website hosting
• Email marketing tools
• Design and content
• Events and networking

Professional and compliance

• Accountant
• Solicitor
• Insurance
• Licences or registrations
• Tax and accounting support

International business costs

• Overseas supplier payments
• FX fees
• International transfer fees
• Marketplace and platform fees
• Import and export admin costs

Just note that this is a planning checklist, NOT a tax checklist. Some costs may not be allowable for tax purposes or may need to be treated as capital spending rather than operating expenses.

How to track operating expenses

To track operating expenses, you must record every cost as it happens in accounting software or a spreadsheet, categorise it consistently, and review your totals each month or quarter. Here are the main steps:

• Choose an accounting software or a spreadsheet to log costs as they happen, rather than reconstructing them later
• Categorise expenses consistently, using the same groups each period so figures are comparable over time
• Separate business and personal spending, ideally with a dedicated business account and card
• Keep invoices and receipts as proof of each expense
• Reconcile bank and card transactions regularly so nothing is missed or double-counted
• Review recurring subscriptions, since unused tools are a common source of quiet overspend
• Track spend by team, project or supplier where it helps, and flag unexpected increases early

Good records are also a legal requirement. Limited companies must keep accounting records for six years from the end of the financial year they relate to, and longer in some cases, such as when an asset is expected to last more than six years.⁷ Clear records of receipts and expenses also support an accurate tax return.

If some of your costs are international, this is also where hidden FX payments and transfer fees can creep in, so it is worth tracking them as carefully as any other expense. For a fuller walkthrough, see this guide on how to track business expenses.

How to reduce operating expenses

To reduce operating expenses, review where your money goes regularly and cut or renegotiate costs that no longer add value, without touching the ones that support revenue or compliance.

Practical steps include:

• Review recurring subscriptions and cancel tools you no longer use
• Negotiate supplier contracts, especially at renewal
• Compare business insurance and utilities rather than auto-renewing
• Review payment processing and bank fees, which often go unchecked
• Compare international payment and FX costs before making regular overseas payments
• Automate manual admin tasks to save time and reduce errors
• Reduce unnecessary travel where remote options work
• Manage software licences so you only pay for active users
• Track team spending to catch overspend early
• Review marketing ROI and shift budget to what works

Reducing operating expenses is not always about cutting the cheapest cost. The goal is to understand which costs support revenue, efficiency and customer experience, and which no longer add value. Cutting essential spending on staff, compliance or systems that support growth can cost more in the long run than it saves.

If international transfers or FX costs are part of your operating spend, it is worth comparing the exchange rate, transfer fee and delivery route before making regular supplier or contractor payments, since small differences add up across a year. Wise Business lets you pay overseas suppliers and contractors at the mid-market exchange rate with fees shown upfront, so you can see exactly what each international payment costs.

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Operating expenses vs cost of sales

The difference between operating expenses and cost of sales is what the cost is for. Cost of sales, also called cost of goods sold, relates directly to producing or buying the goods and services you sell. Operating expenses are the broader day-to-day costs of running the business, regardless of how much you sell.

Some costs can be classified either way, depending on your business model and accounting policy. For example:

• For an ecommerce business, buying stock is usually cost of sales, while warehouse rent or ecommerce software is an operating expense
• For a service business, contractor costs could be a direct cost or an operating cost, depending on how the accounts are structured

Because classification affects how profit is reported, and in turn your profit margin, it is worth checking with your accountant if you are unsure how to categorise a cost. You can also read more in this guide to the cost of sales formula.

Wise Business and international operating costs

Operating expenses are easier to manage when you can see exactly what your business is paying and why. If your costs include overseas supplier payments, contractor payments or international subscriptions, Wise Business can help with the payment side, with transparent fees and the mid-market exchange rate.

With a Wise Business account, you can pay overseas suppliers and contractors in multiple currencies, receive payments from international clients, and hold and manage money in 40+ currencies. Fees are shown upfront* before each payment, and team members can be given expense cards with set spending limits, which makes international and team spending easier to track and categorise.

Wise Business is not accounting software, and it does not decide whether a cost is allowable for tax or how it should be categorised. What it can do is make the payment side clearer, so the international costs in your operating expenses are easier to see and manage.

Please see Terms of Use for your region or visit Wise Fees & Pricing for the most up to date pricing and fee information.

With Wise Business, you can:

• 🌍 Send money to 70+ countries and pay overseas invoices at the mid-market exchange rate with low, transparent fees and no hidden exchange rate markups (product availability varies by region)
• 📥 Receive payments in 24 currencies and counting
• 💵 Get local account details for 8+ currencies, including USD and EUR, to let your customers pay in a currency they know and trust - convenience for them and peace of mind for you
• 💰 Hold money in 40+ currencies
• 🔁 Convert currencies anytime at the mid-market exchange rate with low, transparent fees
• ⚡ Use the batch payments tool to create and send up to 1,000 payments in a single transfer
• 👥 Run payroll and make international payments for up to 1,000 employees all over the world - including paying suppliers using local payment methods like ACH, SEPA, and Faster Payments
• 💳 Get business debit cards with 0.5% cashback for you and your team to keep track of team expenses and spend all over the world, with real-time visibility and categorisation. See full cashback terms and conditions
• 🏢 Manage cash in 55+ currencies across international offices from a single business account and move money between business accounts in seconds (exact speeds can vary depending on individual circumstances and may not be the same for all transactions)
• 🧾 Connect and sync every business transaction to your favourite accounting software, including Xero, Quickbooks, and more
• 🔐 Create your own payment approvals process to manage your team better with customised access for different team members, roles and permissions
• 📑 Create custom professional invoices and schedule invoice payments for future dates
• 📈 Earn variable returns on GBP, USD and EUR with Wise Interest (Growth not guaranteed. Your balance will go down in the event of a government default or interest rates going negative.)
• 🔗 Create payment links and QR codes to get paid easily (Card payment acceptance for new Wise Business customers is currently unavailable. Payment methods subject to eligibility and availability.)
• ⚙️ Automate payouts with the Wise API (comes with 24/7 customer support, a sandbox account to test integrations, API tokens, and clear documents on how to implement and make the most of our API)

Make the wise choice when selecting a business account for your domestic and global needs.

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Disclaimer: The UK Wise Business pricing structure is changed on 26/11/2025. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

FAQs

Are salaries operating expenses?

Yes. Salaries and wages for staff involved in running the business are operating expenses, recorded on the profit and loss account. Wages for staff directly producing goods or services may sometimes be treated as cost of sales instead, depending on how the accounts are structured.

Is rent an operating expense?

Yes. Rent for business premises is a typical operating expense, alongside related costs like business rates and utilities. It is a day-to-day cost of running the business rather than a long-term asset purchase.

Is software an operating expense?

Usually, yes. Software subscriptions, such as accounting or project tools paid monthly or annually, are operating expenses. Buying software outright as a long-term asset can sometimes be treated as capital spending instead, depending on the cost and your accounting policy.

What is the difference between OPEX and CAPEX?

OPEX (operating expenses) covers the day-to-day costs of running a business, such as rent, salaries and software. CAPEX (capital expenses) is spending on longer-term assets like equipment or vehicles. The two are recorded and taxed differently.

Are operating expenses tax-deductible?

Often, but not always. Many operating expenses can be claimed as allowable expenses to reduce taxable profit, but whether a specific cost qualifies depends on your business structure, the type of cost and how it is used. Check HMRC guidance or speak to an accountant if you are unsure.

Can Wise Business help manage operating expenses?

Wise Business is not accounting software and does not categorise costs, but it can help with the payment side. If your operating expenses include overseas suppliers, contractors or subscriptions, Wise Business lets you pay at the mid-market exchange rate with fees shown upfront, making those international costs easier to see.

Sources used in this article:

1. xero.com - Operating expense definition, Xero.
2. gov.uk - Expenses if you're self-employed, GOV.UK.
3. gov.uk - Claim capital allowances, GOV.UK.
4. gov.uk - Claim capital allowances: what you can claim on, GOV.UK.
5. gov.uk - Prepare annual accounts for a private limited company, GOV.UK.
6. fathomhq.com - Operating expense ratio, Fathom.
7. gov.uk - Running a limited company: company and accounting records, GOV.UK.

Sources last checked 03 Jul 2026