Running a limited company comes with many costs, from accounting and software to travel, marketing and office expenses. But an expense being paid by your company does not automatically mean it is tax deductible.
Understanding limited company expenses in the UK can help you keep better records, calculate taxable profits correctly and avoid claiming costs that HMRC does not allow.
What Are Limited Company Expenses?
Limited company expenses are costs incurred in running your business.
For Corporation Tax purposes, a revenue expense can generally be deducted when calculating taxable profit if it is not specifically disallowed and is incurred wholly and exclusively for business purposes.
For example, if your company has £80,000 of income and £20,000 of allowable revenue expenses, its taxable profit may be £60,000 before considering other adjustments and reliefs.
However, the exact tax treatment depends on the type and purpose of the expense.
Common Allowable Limited Company Expenses
1. Office Costs
A company may be able to claim genuine business costs such as:
- Office rent
- Business rates
- Stationery
- Postage
- Printing
- Business telephone costs
- Internet costs
- Office supplies
Where an expense has both business and private use, the identifiable business element may potentially be claimed, depending on the circumstances.
2. Accounting and Professional Fees
Professional costs incurred for running the company can include:
- Accountant’s fees
- Bookkeeping fees
- Tax advice
- Business consultancy
- Certain legal fees
- Professional subscriptions
However, professional fees connected with buying or selling a capital asset may have different treatment and may not be ordinary revenue expenses.
3. Software and Online Services
Businesses often use a range of digital tools. Business-related costs may include:
- Accounting software
- Cloud storage
- Website hosting
- Business software
- Cybersecurity services
- Online subscriptions
Keep invoices and records showing what the service is and how it relates to the company’s business.
4. Marketing and Advertising
Marketing costs can be an important part of running a company. Depending on the circumstances, expenses may include:
- Google or social media advertising
- Website development
- SEO services
- Printed marketing materials
- Business cards
- Promotional campaigns
The expense should have a genuine business purpose.
5. Business Travel
Travel costs can be allowable where the journey is undertaken for a qualifying business purpose.
Examples can include:
- Train and bus fares
- Business flights
- Taxis
- Hotel accommodation
- Parking
- Certain business mileage costs
However, ordinary commuting between home and a permanent workplace is generally not treated as allowable business travel.
If a journey has both business and private purposes, the tax treatment needs careful consideration. HMRC guidance allows an identifiable business proportion in certain circumstances, but a genuinely dual-purpose expense can be more complicated.
6. Staff Costs
Employee costs can include:
- Salaries
- Employer National Insurance
- Certain employee benefits
- Some qualifying staff-related expenses
Staff entertaining can have different rules from client entertaining.
For example, an annual staff function may qualify for an exemption from tax and National Insurance if the relevant conditions are met, including the £150 per-head limit and requirements concerning the event and employees.
The £150 limit should not be treated as a general £150 allowance for every type of staff entertainment.
7. Business Insurance
Insurance taken out for genuine business purposes may be an allowable business cost.
Examples include:
- Professional indemnity insurance
- Public liability insurance
- Employers’ liability insurance
- Business premises insurance
The policy should relate to the company’s business activities.
Expenses That Are Not Usually Deductible
Not every expense paid by a limited company can reduce its Corporation Tax bill.
Client Entertainment
Client entertaining is generally not deductible for Corporation Tax, even when it is genuinely related to the business. HMRC also states that costs incidental to business entertainment can be disallowed.
For example, taking a potential client to an expensive dinner may be a genuine business expense in a commercial sense, but the cost will generally not qualify as a Corporation Tax deduction.
Personal Expenses
Personal or private expenses should not simply be put through the company.
Examples could include:
- Personal shopping
- Private holidays
- Family expenses
- Personal subscriptions
- Private leisure activities
If an expense has both business and private elements, the treatment depends on the circumstances and whether a genuine business proportion can be identified.
Fines and Penalties
Fines and penalties should not normally be treated as ordinary deductible business expenses. Their tax treatment can depend on the nature of the payment, so unusual cases should be checked before claiming a deduction.
Revenue Expenses vs Capital Expenses
One of the most important distinctions for a limited company is the difference between revenue and capital expenditure.
Revenue expenses are generally the day-to-day costs of running the business.
Capital expenditure relates to acquiring, creating or improving assets that the company will use over a longer period.
For example, buying a server that the company expects to use for several years is likely to be capital expenditure rather than an ordinary revenue expense. Capital expenditure is not normally deducted as a revenue expense, but the company may be able to claim capital allowances where the relevant conditions are met.
Getting this distinction right is important when preparing the company’s accounts and Corporation Tax return.
What About VAT?
Corporation Tax and VAT are separate areas of tax.
An expense may be deductible when calculating Corporation Tax, but that does not automatically mean that the VAT can be reclaimed.
VAT recovery depends on the nature of the expense, whether the company is VAT registered and the applicable VAT rules.
Therefore, expenses should be reviewed for both their Corporation Tax treatment and VAT treatment.
Keep Proper Records
Good record keeping is essential.
Your company should keep appropriate evidence such as:
- Receipts and invoices
- Mileage records
- Business travel details
- Bank statements
- Expense claims
- Contracts
- Subscription invoices
- Evidence of the business purpose
HMRC advises companies to keep accurate and detailed business records and to understand whether expenditure is revenue or capital.
Frequently Asked Questions (FAQs)
1. What expenses can a limited company claim in the UK?
A limited company can generally claim qualifying business expenses incurred wholly and exclusively for business purposes. Common examples include office costs, accounting fees, business insurance, software, marketing, qualifying business travel and employee costs.
2. Can I claim personal expenses through my limited company?
Generally, no. Personal expenses should not be claimed as business expenses. Where a cost has both business and private use, the tax treatment depends on the circumstances and an appropriate business proportion may need to be considered.
3. Can a limited company claim for business travel?
Yes, qualifying business travel expenses can generally be claimed. These may include public transport, hotels, parking and certain business mileage costs. Ordinary commuting to a permanent workplace is generally not allowable.
4. Can a limited company claim client entertainment?
Generally, no. Client or business entertaining costs are normally not deductible for CorporationTax, even if the entertainment has a genuine business purpose.
5. Can a limited company claim staff entertainment?
Certain staff entertainment can qualify for tax relief or exemptions, subject to specific conditions. For example, an annual staff function may qualify for the £150 per-head exemption if the relevant conditions are met.
Final Thoughts
Knowing what expenses a limited company can claim is an important part of managing your business finances.
The key point is simple: just because your company pays for something does not mean it is automatically tax deductible.
Before claiming an expense, consider:
Is it genuinely for the business? Is it revenue or capital expenditure? Is it specifically disallowed? And are there separate VAT or benefit-in-kind considerations?
Keeping accurate records and getting professional advice where necessary can help your company claim legitimate expenses while staying compliant with HMRC rules.
Need Help With Your Company Accounts?
Managing expenses, bookkeeping and Corporation Tax can take valuable time away from running your business.
Professional accounting support can help you maintain accurate records, identify potentially allowable expenses and prepare your accounts and tax returns correctly.
If you’re unsure about the tax treatment of a company expense, speak to a qualified accountant before claiming it.
This article provides general information based on UK tax rules and is not a substitute for professional tax advice. Tax treatment can depend on individual circumstances and rules may change.