As a limited company owner, you incur a variety of costs while running your business. Here, we look at which expenses are ‘allowable’ for Corporation Tax purposes, and highlight some common expensing errors to avoid.
Limited company expenses – the ground rules
There are some fundamental rules you need to know when it comes to expense claims:
- Your company can only reclaim expenses that have been incurred wholly, exclusively and necessarily in the course of running the business.
- Your company can’t reclaim expenses with a ‘duality of purpose’, i.e., with joint personal and business use.
- Always keep all receipts and expense-related paperwork in a safe place, as you may need to prove claims if challenged in the future.
- Most expenses can be offset against the company’s Corporation Tax liability, although some notable exceptions exist (such as business entertainment).
Company expenses or personally reimbursed expenses
There are two ways your company pays for services and goods – either directly (via your limited company bank account), or you may pay for things personally – and later reclaim the costs from the company.
In each case, you need to ensure that any costs your company claims against its Corporation Tax liability are legitimate.
30+ common limited company expenses you can claim for
Here we take a look at some of the most common types of expenses you will come across as a limited company owner. These rules apply to your company if your work is not caught by IR35 (see notes at the end).
Costs of accommodation while away from home (as long as your contract has not lasted more than 24 months at the same location).
Accountants and other professional fees
Accountancy fees (typically monthly), plus any one-off accounting charges. Note that the completion of your personal tax return is not a legitimate company expense. Other professional fees, such as hiring a solicitor to act on behalf of the company.
Annual events including Christmas parties
The cost of an annual company event, such as a Christmas party, up to £150 for you, and your partner. You should not exceed this threshold.
Bank and finance charges
Bank account charges, e.g. a standing monthly charge, or any penalties related to your business account. You can also offset the interest paid on loans, overdrafts, and other finance agreements. Read this guide to interest and related expenses.
You can provide gifts to business clients worth up to £50 per recipient. Read more in our guide to gift expenses.
You can claim some of the cost of childcare – up to £243 per employee, depending on your income tax band.
Unsurprisingly, you cannot claim for normal work clothing. The only exception is if you need to buy any clothing specifically for business use, such as protective or safety-related equipment. Find out more here.
Costs of ongoing company administration (e.g. the £13 fee for filing your annual Confirmation Statement with Companies House).
Company formation (special note)
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.
Computer hardware and equipment
Equipment costs, such as PCs, laptops, and peripheral hardware.
This includes any specific software required to undertake your contract work as well as commonly used products such as MS Word and anti-virus tools.
Director and employees’ salaries
Salaries of all company employees (often for a single director, and sometimes a spouse or co-director).
Entertainment (special note)
Costs of entertaining clients may be reclaimed, but it cannot be offset against the company’s Corporation Tax bill.
Costs of an annual eye test, and in some cases, the cost of corrective glasses. See our dedicated guide.
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.
Business insurance – often specified as a requirement of your contract. Typically includes Professional Indemnity cover.
Life insurance funded by your company – as long as it’s a relevant life policy. This can be up to 50% cheaper than personal life cover.
Magazine subscriptions and periodicals, if related to your contract work, and allowed by HMRC.
Marketing, PR and web
Advertising and marketing costs for your company, including website design and maintenance, professional CV / LinkedIn advice, online advertising, and social media promotion.
National Insurance Contributions
Employers’ National Insurance Contributions (NICs) on salaries paid to employees and directors above the current NIC threshold.
Office space rental
If you rent an office, the rental costs themselves can be offset, although any deposit cannot be – this remains on the company’s balance sheet until it is repaid in the future.
Contributions to an executive pension scheme. Tax relief is subject to annual and lifetime contribution limits.
You can claim relocation expenses of up to £8,000 (subject to fairly strict eligibility rules).
For smartphones – which are almost ubiquitous these days – the rules covering mobile phones also applies, i.e. the contract should be in the company’s name. You are unlikely to justify offsetting the cost of other smart devices – such as smart watches. See more in our guide to smartphone expenses.
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.
Stationary and peripherals
Costs of company stationery, business cards, postage, printing, etc.
Subscriptions to professional organisations – only if on HMRC’s list of allowed groups.
Subsistence costs while away from home (subject to the ’24 month rule’).
Telephones and Broadband
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.
Training courses, if directly related to your contract work. Read our guide to training expenses.
Small gifts of up to £50 to employees are allowed – and don’t need to be reported on the annual P11D form. Make sure you know the exclusions – read our guide to trivial benefits.
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.
Working from home
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.
Common expenses you cannot claim for
There are some things your company cannot offset against its Corporation Tax bill – some are obvious, others less so.
- Anything you buy for your personal use (i.e. with no business use whatsoever).
- Personal health and medical expenses aside from the exclusions listed above.
- Dividend payments to shareholders.
- Capital expenses – such as plant and machinery costs. These are dealt with via capital allowances and may be offset against your company’s profits over time.
More useful information on expenses
- 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 and your company 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.
- Consult HMRC’s A-Z of expenses and benefits for employees for further examples.
How does IR35 affect expenses?
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, since April 2021, you can only claim this allowance if you’re working for a ‘small company’ in the private sector.
If this is the case, you can still claim ‘Section 198′ expenses, such as travel, subsistence, and pension costs.
In all other cases – where your contract work is caught by IR35 – your ability to offset expenses via your company is limited and the rules are strict. Your ability to claim expenses is effectively the same as a traditional ’employee’, although – unfortunately – you cannot claim for things like subsistence and travel to and from the workplace.
If your work is caught by IR35, make sure you ask your accountant if you have any questions about expenses.
The rules which govern expense claims are complex, so we’d recommend contacting an accountant if you have any concerns. Don’t rely solely on information included in this guide.
Our Recommended Contractor Accountants
- Integro Accounting - 6 months fixed fee accountancy service half price!
- Clever Accounts - IR35 FLEX. Take on any contract you're offered
- SG Accounting - Join SG and get first 3 months @ £54.50pm
- Aardvark Accounting - Complete service just £76/month
- Intouch Accounting - Expert advice. Maximise your take-home pay