6 DEC 2024
10 MIN
READ
Knowing what you can and can’t claim will give you a clearer understanding of the ins and outs of your tax bill and could leave you with a healthier take-home pay!
Here, we look at the allowable expenses your limited company can claim for tax purposes, how you can claim, and what you should keep an eye on to ensure you stay compliant with HMRC.
Allowable expenses you can claim
What are allowable expenses?
Allowable expenses are the costs directly related to running a business which are deemed as necessary. Businesses are able to subtract these costs from its income when calculating the taxable profit.
Every business has overhead costs to juggle and, as a limited company owner, you can claim tax relief on these costs via business expenses. This helps keep your business more tax efficient by reducing your profit and Corporation Tax payment.
Limited company expenses: the fundamental rules
When it comes to claiming business expenses for your limited company, there are set rules to follow:
- Only claim for work-related expenses that occur explicitly from running your business.
- Any claims made must be expenses used solely for business purposes. Expenses with a dual purpose, such as personal use, are not permissible.
- You must make all payments for business expenses via your business account.
- Limited company expenses can help offset your company’s corporation tax liability. However, be aware as there are some exceptions to this rule.
- Keep up-to-date records detailing all running costs and expenditure. Be sure to have copies of relevant VAT receipts and documentation to support any claims.
Limited company expenses: the fundamental rules
You can either pay your limited company’s expenses straight from your business account or as a reimbursed expense if you decide to fork out from your own pocket. Keep in mind, your employees can claim expenses too, so it’s worth creating a company expense form and policy to make sure everyone understands how much they’re allowed to spend and where.
Top tip: Remind your employees to hold onto their receipts and collect their expense forms at the end of each month.
Record keeping for your limited company
You need to run a tight ship when it comes to keeping track of your limited company’s business expenses. As without accurate record keeping, HMRC may disallow your expenses claim, meaning you wouldn’t be eligible to claim tax relief.
If you’re struggling to keep a record of your business expenses and costs, consider making use of some of the following:
- Accounting software
This software can make it easier to keep track of your business expenses. Many of these platforms allow you to digitise any data or receipts you may have, allowing you to categorise them appropriately. - Electronic recording systems
These can help manage the lifecycle of all relevant documents, sending you notifications when they are due to expire. Some systems will allow you to set up automation for new records in line with set policies and rules.
- Accountants
Consider hiring an accountant to keep your affairs in order. Meticulous record keeping may not be in your wheelhouse, so outsourcing this skill can be invaluable to your business to plug the gaps in your own knowledge. - Annual expense spreadsheet
You can update this and amend it throughout the year to ensure all spend is captured and accounted for. Online spreadsheets have the advantage of allowing more than one person to access and edit the sheet at the same time – especially handy for a larger team!
Limited company expenses you can claim
Charges and fees
You’re able to claim expenses on bank fees and charges that are associated with your business account if the account or card is in the name of your business. If the charges or fees are linked to your personal accounts, however, these can’t be claimed as an allowable expense.
Charges and fees you can claim:
- Bank charges
- Interest on business loans
- Interest on finance agreements
- Hire purchase interest
- Lease payments
Charges and fees you can’t claim:
- Fees and charges associated with your personal account
- Loan amounts
- Fines for regulatory non-compliance
- Penalties for late payments
- Arranged overdrafts
Business insurance expenses
You can claim the cost of your business insurance policies as limited company expenses, if you use the policies strictly for business purposes. Business insurances including public liability insurance, employers liability, professional indemnity insurance are all allowable expenses and contents insurance are all allowable expenses.
Advertising, marketing and PR expenses
You work hard to shout about your services through your advertising, marketing and PR activity. Whether it’s a one-off cost or an ongoing fee, if the investment has been used solely for business purposes, then this can be claimed as one of your limited company expenses.
Accommodation expenses
If you’re on a business trip and are required to stay overnight on location, you can claim the accommodation costs as an expense. You can also claim the costs incurred for the food and drink you purchase as travel and subsistence costs.
Use of home as office
If your home is the heart of your business, you may be able to claim a percentage of your household costs and utility bills as business expenses This may include things such as energy bills, any costs associated with printing and posting. Accountancy and legal services can also be claimed as an limited company expenses too – as long as they’re used solely for business purposes.
Gifts, entertainment and trivial benefits
You don’t need to pay tax and National Insurance or let HMRC know about a gift or benefit for your employee (otherwise known as a trivial benefit) if the following rules apply:
- It’s not set out in the terms of their contract
- It’s not a reward for their performance or work
- It isn’t cash or a cash voucher
- It cost you £50 or less to provide
If you offer employees gifts or benefits that don’t match all the criteria above, then you’ll need to pay tax on them.
Professional subscription expenses
Occupation-specific magazine subscriptions, journals and books can be claimed as a limited company expense. For example, if you’re the editor of a photography magazine and you have a subscription to a rival title, you should be able to claim the cost of this as a business expense as it’s a way for your business to keep up to speed on industry trends and keep an eye on your competitors.
Phone bills and broadband
Work phone contracts and broadband payments can be claimed as a limited company expense. If your mobile phone contract is in your company’s name and used solely for business purposes, you can claim the entire bill as a business expense.
If it's a personal contract, you’ll need to separate the business and personal use to claim the business-related expenses only. You can also claim limited company expenses for the business calls you’ve made from your home phone line.
Equipment expenses
From computers and software to scanners and printers, the equipment that’s necessary to help you carry out your role as a limited company director can be claimed as company expenses. Office furniture, such as chair and desks, can also be claimed, as long as it’s used for business purposes.
Travel expenses
Travel expenses can be claimed as limited company expenses if:
- You’re responsible for paying the travel costs
- The travel is necessary for work purposes, and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and permanent workplace.)
If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:
| Mode of travel | Claimable expense |
| Cars and vans | 45p per mile for the first 10,000 miles and then 25p for every mile thereafter |
| Motorcycles | 24p |
As well as the mileage rates listed above, you can also claim the following as business expenses:
- Parking costs
- Road toll fees
- Congestion charges
- Hotel rooms (within reason)
- Food and drink on overnight trips
- Public transport, including train, bus, air and taxi fares
- Vehicle Insurance
- Vehicle repairs and servicing
Startup costs
Startup costs can be claimed as limited company expenses for up to seven years before a company starts trading. Common pre-formation business expenses include laptops and computers software, internet and domain name fees, travel costs, as well as professional services such as accounting and legal help.
Salary
As a director of a limited company, if you choose to pay yourself a salary as an employee of your business, this, and the corresponding National Insurance Contributions (NIC), can be claimed as allowable expenses. Bear in mind that once you reach the National Insurance threshold, you’ll have to start paying NICs.
Pensions
Once you’ve established an agreement with a pension provider, you can pay into your pension pot and get 100% tax relief as a limited company expense. However, be aware that there’s a limit on how much money you can add in tax-free to a pension scheme via your business or personally.
Entertainment expenses
Generally speaking, spending money on business entertainment isn’t an allowable expense against profits. However, if you have to spend your own money on business entertainment as part of your duties as a limited company director, you may be able to claim it as a business expense. It’s important to note that these business entertainment costs would be disallowed in the company profits, giving you the same result as not claiming in the first place.
Eye test expenses
If your employees use computer screens as a big part of their job role, they can claim eye tests and health checks as a limited company expense. The cost of prescription glasses or contact lenses can also be claimed as business expenses, but only if they’re used strictly for screen-based work as part of their employment.
Can I claim buying assets as a business expense?
When it comes to buying assets for your business, this type of purchase is considered to be a capital expense, as opposed to a business expense. Therefore, you can’t claim back on these as a business expense. However, you may be able to claim these as capital allowances.
There are specific rules around capital allowances, so it may be worthwhile speaking with an accountant for expert advice tailored to your own situation. They can also provide guidance when it comes to purchasing assets to ensure you’re up to code with the relevant tax laws and legislation.
What can’t you claim for an allowable expense?
When it comes to claiming allowable expenses, there are limitations to what you can claim as an allowable expense.
Type of expense |
Details |
|
| Personal expenses |  |
Any expenses occurred due to personal use aren’t classed as an allowable expense |
| Entertainment | |
Expenses related to non-business entertainment or hospitality that are not incurred for the purpose of generating income for the company |
| Penalties and fines | |
This type of expenses is usually related to non-compliance or punitive actions. These can’t be claimed as they’re not directly linked to the business activities of the company |
| Excessive remuneration | |
It’s essential to ensure that remuneration is reasonable and justifiable based on the services provided to the company |
| Donations not made via Gift Aid | |
Donations of this kind are not considered allowable expenses for corporation tax purposes |
Nobody wants to pay more tax than they have to, which is why it’s important to keep your business as tax efficient as possible – and it could help save you a pretty penny!
Remember, the golden rule when it comes to working out what allowable expenses you can claim for your limited company: they must be incurred wholly, exclusively and be necessary for the running of your business.
If you’re finding the process of working out what allowable expenses your limited company can and can’t claim difficult, why not get in touch with an accountant for advice to make sure everything is above board?
All links are checked and valid at time of publishing, 6 Dec 2024.