As a limited company owner, you may incur a variety of business expenses whilst undertaking your contract duties. Here, we look at how expenses are ‘allowable’ for tax purposes, and some common errors to avoid.
Limited company expenses – the ground rules
There are some fundamental rules you should bear in mind when it comes to expense claims:
1. You can only reclaim expenses that have been incurred ‘wholly, exclusively and necessarily’ in the course of carrying out your contract duties.
2. You can’t reclaim expenses which have a ‘duality of purpose’, i.e. expenses which have a joint personal and business use.
3. Always keep all receipts and expense-related paperwork in a safe place, as you may need to prove claims if challenged in the future.
4. Most expenses can be offset against the company’s Corporation Tax liability, although there are some notable exceptions (such as business entertainment).
Company expenses or Personally reimbursed expenses
There are two ways in which your company will pay for services and goods – either directly (via your limited company bank account), or you may incur some costs using your own personal funds.
In each case, you need to be sure that the expense is a legitimate one. And, if you have paid for anything personally (on behalf of the business), this can be reimbursed from your company.
Typical limited company expenses
- Salaries of all company employees (typically just you, and sometimes a spouse)
- Employers’ National Insurance Contributions (NICs) on salary above the current NIC threshold.
- Contributions to an executive pension scheme. Tax relief subject to annual and lifetime contribution limits.
- Costs of company stationery, business cards, postage, printing, etc.
- Equipment costs, such as PCs, laptops, peripheral hardware.
- Bank account charges, e.g. a standing monthly charge, or any penalties related to your business account.
- The interest on loans, overdrafts, and other finance agreements. Read this guide to interest and related expenses.
- Training courses, if directly related to your contract work. Read our guide to training expenses.
- Business insurance, including Professional Indemnity cover.
- Magazine subscriptions and periodicals, if related to your contract work, and allowed by HMRC.
- Subscriptions to professional organisations – only if on HMRC’s list of allowed groups.
- Costs of accommodation while away from home (as long as your contract has not lasted more than 24 months at the same location).
- Subsistence costs while away from home (subject to the ’24 month rule’).
- Telephone, Mobile, and Broadband costs, but only if the contract(s) are in your limited company’s name. Read our guide to telephone and broadband expenses.
- You can still reclaim the cost of individual business calls if they have been made on your personal phone/mobile account.
- Costs of travel, and parking expenses when travelling to sites other than your regular workplace. See our guide to reclaiming business travel expenses.
- If you use your own car for business travel, you can reclaim 45p for the first 10,000 miles, and 25p thereafter (24p for motorbikes regardless of the total number of miles). Find out more about car expenses here.
- A flat £6/week (£26/month) allowance for running a home office, or if you work from home on an ongoing basis, you can reclaim a percentage cost of household bills, or create a commercial rental agreement with your company. See our guide to working from home expenses.
- Accountancy fees (typically monthly), plus any one-off accounting charges. Note that completion of your personal tax return is not a legitimate company expense.
- Costs of an annual eye test, and in some cases, the cost of corrective glasses. See our dedicated guide.
- Many medical and health-related expenses. Depending on your circumstances, it may still be beneficial to fund Private Health Insurance via your company, even though it is not tax-deductible.
- Other professional fees, such as hiring a solicitor to act on behalf of the company.
- Costs of ongoing company administration (e.g. the £13 fee for filing your annual Confirmation Statement with Companies House – which replaces the Annual Return).
- You can claim relocation expenses of up to £8,000 (subject to fairly strict eligibility rules).
- You can reclaim the cost of your company formation if you paid for it personally, but the incorporation is a one-off ‘capital cost’, so your company will not be able to offset the fee against Corporation Tax.
- Childcare costs – you can claim for some of the cost of childcare as a valid business expense – up to £243 per employee, depending on your income tax band.
- You can claim the cost of sponsorship (e.g. of a local sports team) as a business expense, but charitable donations which do not provide a direct benefit to your company in return are not treated as ‘expenses’ in your accounts, although they still can be offset against your Corporation Tax bill.
- Advertising and marketing costs for your company, including website design and maintenance, professional CV / LinkedIn advice, online advertising, and social media promotion.
- Costs of an annual company event, such as a Christmas party, up to £150 for you, and your partner. You should not exceed this threshold.
- Costs of entertaining clients may be reclaimed, but it cannot be offset against the company’s Corporation Tax bill.
- You can provide gifts to business clients worth up to £50 per recipient.
- Life insurance funded by your company – as long as it’s a relevant life insurance policy. This can be up to 50% cheaper than paying for life cover personally.
- Income protection policies (to provide income in case you’re unable to perform your contract duties) – premiums must be paid for via your limited company. Find out more here.
If your contract work falls within the scope of the IR35 rules, you may be able to claim a fixed allowance, equal to 5% of the turnover of the contract in question, to cover the costs related to running a limited company. However, if your contract is caught by IR35 and you are working for a public sector organisation, this allowance can no longer be claimed.
In addition, you can still claim ‘Section 198’ expenses, such as travel, subsistence, and pension costs.
You should be able to reclaim any expenses you paid for personally before your company was incorporated, as long as certain conditions are met. See our guide to pre-trading expenses.
If your company pays for services which benefit you personally, rather than the business, you will be taxed on each ‘benefit in kind’. Examples include the provision of a company car, or where your company pays for your gym membership subscription.
The rules which govern expense claims are complex, so we’d recommend contacting an accountant if you have any concerns.