Limited company expenses – what can you claim against tax?

claim expenses ltd company

There are many types of expenditure you will incur whilst running a limited company, however which expenses can you legitimately claim against your company’s tax bill?

Company expenses – in a nutshell

In order for an expense to be ‘legitimate’ as per HMRC’s definition, it must have been incurred “wholly and exclusively” for the purpose of the business.

Any allowed expenses will reduce your company’s profits, and therefore the amount of Corporation Tax the company has to pay when your accountant submits your annual company tax return.

Expenses which have a ‘duality of purpose’, i.e. which have a personal and business element are not generally allowable.

And if your company pays for anything which is for the private enjoyment of use of an employee, it will attract a ‘benefit in kind’ charge, subject to Employers’ National Insurance Contributions @ 13.8%, and income tax paid by the employee.

Typically, your company will pay directly for many of the expenses listed below. On some occasions, you may pay for business expenses personally, which you are reimbursed for later by your limited company.

We highly recommend checking with your accountant if you have any questions or concerns over what constitutes a legitimate (tax-deductible) expense.

Typical limited company expenses

Here are some of the most common limited company expenses, with links to further sources where relevant.

Accommodation

If you need to stay away from your permanent residence, whilst on business, reasonable accomodation costs are allowable.

Advertising, Marketing, PR

The costs of promoting your business – both expenses relating to professional services provided, plus any material costs, such as producing promotional literature.

Annual Staff Event

The cost of a regular company event, such as a Christmas party, or the sum of several annual events, as long as the cost per attendee isn’t one penny over £150 each. See EIM21690.

Bank Charges

Any charges or interest related to financial accounts in the company’s name.

Broadband

This is allowable, but only if the broadband contract is in the name of the company. Otherwise, it is impossible to split personal and business use. Read our full guide to broadband expenses here.

Business Gifts

You can claim for the costs of business gifts worth up to £50 per person per tax year. This must be a genuine business gift advertising your company, and not food, alcohol or tobacco (or an exchangeable voucher).

Charity donations and sponsorship

You can make donations via your company, however these sums are not treated as ‘business expenses’, as you receive no benefit in return. They are, however, deductible against your Corporation Tax bill. If you decide to sponsor a team, or something similar, where your company gains something in return (i.e. publicity), then such costs are treated as business expenses. Find out more in our guide to charitable donations and sponsorships.

Childcare

Clearly, childcare is not a legitimate business expense, however employees themselves can claim tax relief up to a certain amount each month.

You (as an employee) can claim £243, £124 or £110 per month in tax relief against their childcare costs according to your tax band (basic, higher or additional).

You will need to produce childcare vouchers from an approved provider in order to claim tax relief.

Clothing

For obvious reasons, tax relief is not usually tax deductible. However, if you require specific clothing (such as a uniform) during the running of your business, this can be claimed, as can protective workplace clothing.

Company Formation

The incorporation cost itself is not allowed as this constitutes a one-off capital expense. The company can reimburse the person who paid the cost, but it cannot be offset against the company’s Corporation Tax bill.

Computer / Internet Software

Any business-related software and subscriptions are allowable. Read our dedicated guide here.

Employers’ National Insurance

Uunsurprisingly, any Employers’ NICs your company is liable to pay on employees’ salaries are allowable. This payroll tax applies to salaries at a rate of 13.8% above the prevailing Class 1 threshold.

Entertainment

With the exception of a regular staff event (see ‘Annual Staff Events’), the cost of entertaining clients is not a tax deductible expense.

Equipment (Plant and Machinery Costs)

You can offset the cost of any significant equipment purchases against your tax bill. This is known as capital expenditure. The tax treatment of such expenses is dealt with via capital allowances. Also read our guide to the tax treatment of standard computer hardware and software.

Food & Drink

If you are travelling from your home to a temporary workplace, you can claim reasonable food and drink expenses.

Insurance

Many companies take out employers’ and public liability insurance, and professional indemnity cover. Business insurance is a legitimate business cost. You can also offset the cost of an executive permanent health insurance policy against your Corporation Tax bill, although the payments themselves (should you make a claim) will be taxable.

Medical Health Check / Eye Tests

The company’s directors and employees can claim for the cost of an annual health check or screening.

If a company employee uses computer equipment, the cost of eye tests is an allowable expense. You can also claim for the cost of prescription glasses or contact lenses, but only if they’re used specifically for screen-related activities at the workplace.

Find out more about health and medical expenses in our dedicated guide.

Mileage

If you use your own vehicle for business reasons, you can claim HMRC’s standard mileage rates – currently 45p/mile (first 10,000 miles), and 25p per mile thereafter. Motorbikes are 24p per mile, and bicycles 20p per mile. See the official rates page.

ltd company expenses tax relief
 

Office Costs

If your company rents an office, the rent, utilities, and any other related costs are allowable. If you have a home office, you can claim a proportion of your household costs (based on the number of rooms in the property and the percentage of time you spend in the office area). Alternatively, you can claim a fixed £4/week or £18/month for home office costs, without the need to provide receipts. See EIM01476.

Pension Contributions

Any contributions made by the company into an approved executive pension scheme are allowable. Tax relief is available up to a maximum of £40,000 per year (the ‘annual allowance’), or 100% of your earnings; whichever is the lower amount.

Phone costs

If the phone contract is in the company name, all costs are allowable. If not, you can reclaim the cost of individual business phone calls. Read our full guide to phone expenses here.

Private Medical Insurance

Health insurance is not an allowable expense, it is an employee benefit. Some companies may still pay for the cost of medical cover, as for various reasons, the total cost (including ‘benefit in kind’ taxes) may be less than paying for it personally.

Pre-Trading Costs

You may well have incurred some costs prior to incorporating your limited company. You can claim legitimate costs from up to 7 years before your company was formed. If you register for VAT, you can also reclaim the VAT paid on legitimate purchases, however the timescales are smaller – up to 6 months for services, and up to 3 years for stock, assets and goods. Find out more in our dedicated guide.

Professional Fees

The cost of hiring professionals to help with various aspects of running your company – such as accountants and solicitors. This also covers the cost of hiring any other company on a business to business contract.

Professional Memberships / Subscriptions

You can claim for memberships, as long as they are on HMRC’s prescribed list. You can also claim for the cost of subscribing to trade magazines and journals. Read our dedicated guide to the tax treatment of professional subscriptions.

Salaries / Wages

The cost of paying staff (and directors) is offset against your Corporation Tax Bill

Stationary, Printing, Postage

These are all allowable expenses, as long as the costs are directly related to your business.

Training Courses

Training-related costs are allowable, as long as the course content is directly related to your business (e.g. a technical certification if you’re an IT contractor).

Travel Expenses

The cost of any type of business travel is an allowable expense. You can also reclaim the costs of congestion charges, tolls and parking fees. If, in the case of a contractor, for example, you travel to a temporary workplace for over 24 months, then costs beyond this time period are not allowable. See our dedicated guide to the 24-month rule.

‘Trivial Benefits’

You can provide staff with small benefits – worth up to £50 at a time (and not a penny more), without having to declare them as ‘benefits in kind’. These might include store gift cards, a hamper, wine or chocolates. As a company director, you can only give up to £300 per year under new rules introduced in April 2016.