Complete Guide to Limited Company Expenses

As a Limited Company director, you will incur a wide range of expenses while running your business. Some of these costs are tax-deductible and can be offset against your company’s Corporation Tax bill. Some are allowed (with restrictions), and others are not allowed at all.

In this guide, we look at which limited company expenses are tax-deductible.

Company Expenses – A quick overview

• A company expense is only tax-deductible if it has been incurred wholly and exclusively for the purposes of your business.
• Legitimate expenses can reduce your company’s profits and its Corporation Tax bill liability.
• A record of any purchase must be kept in either digital or paper format.
• Expenses can either be paid directly from the company bank account or reimbursed where a director or employee incurs a legitimate business cost personally.
• Costs that are not allowable must be added back when calculating taxable profits.
• Some expenses give rise to a benefit in kind, which carries separate tax and reporting obligations.

How are company expenses offset against a Limited Company?

Think of company expenses in three distinct categories. While they all involve company money leaving your bank account, HMRC treats them differently when it comes to your tax bill.

1. Revenue expenses

These are your ‘allowable expenses’, the regular costs of running your business for example software subscriptions, insurance, or office stationery.

How it works: These costs are deducted directly from your total turnover. What is left is your taxable profit. The more allowable expenses you have, the lower your profit, and the less Corporation Tax you pay.

2. Capital expenditure and capital allowances

Some business spending does not qualify as a revenue expense.

Items such as machinery, vehicles and larger pieces of equipment are usually treated as capital expenditure because they are assets the business will use over a longer period, rather than everyday running costs.

How it works: These costs are not deducted directly from profits. Instead, tax relief is provided through capital allowances over time.

Under the Annual Investment Allowance (AIA), you can deduct the full value of most plant and machinery (up to £1m) in the first year, which is a massive help for cash flow.

3. Benefits in kind

If a company pays for something that provides a personal benefit to a director or employee, it may create a benefit-in-kind.

Common examples include company cars used privately, gym memberships, and private medical insurance. These are usually treated as benefits in kind because the director or employee receives a personal benefit from them.

How it works: Benefits in kind must be reported to HMRC, usually via form P11D, with associated Employers’ National Insurance reported on form P11D(b). This form is used to report on National Insurance the company owes on those perks. The company may also have to pay National Insurance on the value of that ‘perk’.

Some small benefits may qualify as ‘trivial benefits’, provided each benefit does not exceed £50 (directors are subject to an annual cap of £300).

The cost of annual staff events (such as a Christmas party) is exempt from tax provided the total cost per attendee does not exceed £150, including VAT.

Legitimate Limited Company Expenses

We have listed the most common limited company expenses below. This isn’t an exhaustive list, so check with your accountant if you’re unsure whether your company can claim a particular cost.

• Working from home >
• Phones, broadband and telephony >
• Equipment, tools and software >
• Office, premises and working environment costs >
• Travel and accommodation >
• Professional fees and advisers >
• Marketing, advertising and online costs >
• Training and personal development >
• Insurance and financial charges >
• Salaries, wages and employer costs >

Working from home

If you work from home, the company can claim a proportion of household running costs where there is clear business use.

This may include heating, electricity and broadband. Again, you must allocate any costs on a reasonable basis and be able to justify any claims you make.

Many smaller limited companies use the fixed £6 per week HMRC flat-rate allowance (£312 per year), which suits most contractor businesses.

You need to take extra care if you want to claim a proportion of household costs or create a more formal arrangement, such as charging your company rent under a contractual arrangement.

Read more in our guide to home working expenses.

Phones, broadband and telephony

Telephone and broadband costs can be claimed when incurred for business purposes.

The tax treatment of mobile phones is fairly straightforward. A limited company can provide a director or employee with one mobile phone without creating a benefit-in-kind, provided the contract is in the company’s name.

Where the contract is held personally, only the cost of individual business calls can be reimbursed. Line rental and bundled charges are not allowable in this case.

Broadband expense rules are more restrictive. If the broadband contract is in the company’s name and used for business, the cost is usually allowable.

Where a home broadband contract is held personally, HMRC treats the cost as having a dual purpose. In most cases, this makes it difficult to claim any proportion of the cost.

Internet-based phone systems, VoIP services, and business telephony subscriptions are generally allowable when used solely for business and paid for by the company.

Read more in our guides to broadband and mobile phone expenses.

Equipment, tools and software

Most day-to-day equipment used in the business is allowable. This includes:

• Monitors
• Office furniture
• Printers
• Trade-specific tools
• Business software and subscriptions are also allowable where they relate directly to company activity, including AI tools.

Items that provide longer-term value, such as computers or laptops, are treated as capital expenditure rather than day-to-day expenses. The cost of these larger items is not deducted in full; these costs qualify for tax relief through capital allowances over time (see above).

Read more in our guide to equipment and software expenses.

Office, premises and working environment costs

If your limited company rents office space, it can claim the rent and associated running costs. These might include utilities, business rates, insurance, maintenance and service charges.

If you share the premises with another business, or part of the space is used for non-business purposes, you should only claim the proportion that relates to your company. Ask your accountant if you’re unsure how much to claim

A rental deposit isn’t a business expense. It remains the company’s asset until it is returned.

Read more in our guide to office and premises expenses.

Travel and accommodation

You can claim the cost of journeys you make for business purposes. This includes train and bus fares, taxis and flights, as well as accommodation if you need to stay away overnight.

If you use your own car for business journeys, your company can reimburse you using HMRC’s approved mileage rates. For cars, these are 55p per mile for the first 10,000 business miles in the tax year and 25p per mile after that.

You can’t claim for ordinary commuting between your home and a permanent workplace.

The 24-month rule can also affect what you can claim. Once you know you’ll be working at the same temporary workplace for 24 months or more, travel and subsistence costs for journeys to that workplace are no longer tax-deductible.

Subsistence costs (such as food and drink) are only allowable when incurred during qualifying business travel.

Relocation expenses may be claimed up to a lifetime limit of £8,000 per employee, subject to qualifying conditions.

Professional fees and advisers

Your company can also claim any professional fees it incurs.

For smaller companies, this typically includes accounting fees and legal advice. You may also use bookkeeping, tax and other professional services.

Importantly, you can’t claim professional fees which cover personal matters, including a director’s personal tax return, although this may be included (for free) as part of your monthly accounting fee.

Training costs are allowable where they relate to maintaining or improving existing skills required for the business. Training that creates a new trade or skillset is not normally allowable.

Marketing, advertising and online costs

You can claim the cost of advertising and promoting your business, provided the spending is for a genuine business purpose.

This can include website design and hosting, branding, online advertising, search engine marketing, social media promotion and exhibition fees.

These costs will usually be treated as day-to-day business expenses and deducted from the company’s profits for Corporation Tax purposes.

Training and professional development costs

Your limited company can normally pay for training courses and other professional development costs as long the training is relevant to the work you already carry out through the business.

This can include refresher courses, technical training, professional development, industry conferences and training on new technology or working practices you use in your existing trade.

The training should relate to the work your company already carries out. An IT consultant, for example, might pay for a course covering a new version of software they already use. A course which trains them for a completely different career is unlikely to qualify.

The same applies to training for a new trade, profession or an unrelated skill. Your company would not normally be able to claim the cost as a business expense.

You may also be able to claim related costs, such as course materials. Travel and accommodation can qualify too, provided the training itself is allowable and the usual business travel rules are met.

Read more in our guide to training expenses.

Insurance and financial charges

Business insurance is another regular and legitimate company cost.

Most contractors have professional indemnity, public liability, and employers’ liability insurance as standard. You may also take out relevant life cover, equipment cover, officers’ insurance and cyber cover.

Business bank charges, card processing fees and interest on business loans or overdrafts are also allowable.

Importantly, any fines and penalties you incur are not tax-deductible.

Salaries, wages and employer costs

The cost of paying directors and employees is normally an allowable expense, provided salaries are paid through the company payroll.

The company can also claim the cost of Employers’ National Insurance and any employer pension contributions.

Bonuses and commissions can also be claimed where they are genuine payments for work carried out for the company.

Pre-trading expenses

Costs incurred before your company started trading can usually be claimed once it begins trading.

These costs must relate directly to setting up the business and are treated as if incurred on the first day of trading.

For Corporation Tax purposes, legitimate pre-trading expenses can generally be claimed if incurred within the seven years before incorporation.

If the company is VAT registered, VAT on pre-trading costs may also be reclaimed. This is normally limited to four years for goods still held at the time of registration and six months for services.

Common examples include professional fees and early website development.

Expenses you cannot claim

Some costs are specifically disallowed for Corporation Tax purposes.

These include:

• Personal expenses with no business use.
• Dividends paid to shareholders.
• Fines and penalties.
• Most client entertainment costs.

Client entertainment may still be reimbursed by the company, but it cannot be offset against the company’s Corporation Tax bill.

Expenses that fail the wholly and exclusively test must be added back when calculating taxable profits.

Record keeping

You must keep records to support all expense claims.

This includes invoices, receipts and evidence showing the business purpose of each cost.

Our Integro Accounting clients benefit from using our recommended software program FreeAgent – this will allow all clients to scan in their receipts and keep copies digitally. If you use accounting software such as FreeAgent or Xero, you can upload everything to your online account.

All companies must retain accounting records for at least six years.

How IR35 affects expense claims

If your contract work falls within the scope of the IR35 rules, your ability to claim expenses through a limited company is restricted.

In many cases, allowable expenses are limited to those available to employees, and relief for travel and subsistence is significantly reduced.

If your work is affected by IR35, it is worth confirming your position with your accountant before claiming expenses – you can also read more about IR35 here in our Comprehensive Guide to IR35.

Do you have any expense-related questions?

If you have any questions about expenses or are unsure whether you can claim, please get in touch with us. We’re always happy to help.

Get in touch today by calling 0207 096 2659 or book a free discovery call with our expert accountants who can guide you further.