Allowable expenses for Limited Companies: what you can and can’t claim.
- November 2021
- 5 minutes
Do you know what your limited company can claim as expenses? Here is our guide.
Every business has overhead costs to deal with, ranging from stationery and phone bills to computer software and travel expenses. As the owner of a limited company, you can claim tax relief on these costs through business expenses, which helps you keep your company tax efficient by lowering your profit and Corporation Tax payment.
Knowing what you can and can’t claim will give you a clearer understanding of the ins and outs of your tax bill and could leave you with healthier take-home pay.
Here, we’ll look at the tax-deductible expenses your limited company can claim, how to claim them, and what to watch out for to stay out of HMRC’s bad books.
Limited company expenses: the fundamental rules
When it comes to claiming business expenses for your limited company, there are a number of rules you should follow:
- You can only claim for the expenses you incur wholly and exclusively during the everyday running of your business.
- You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can only claim for the business days, not the additional leisure days.
- Business expenses can be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.
- The majority of limited company expenses can be offset against your company’s corporation tax liability – although there are some exceptions, including business entertainment.
- Try to maintain an accurate record of pre-formation and running costs, including VAT receipts, so you can justify your actions if you’re queried about your business expenses claims in the future.
How to claim expenses as a limited company
If you choose to pay for your limited company’s expenses out of your pocket, you can do so either directly from your business account or as a reimbursed expense. Employees can also claim expenses, so it’s worth creating a company expense form and policy to ensure that everyone knows how much they can spend and where they can spend it.
Remind your staff to keep hold of all their receipts and collect their expense forms at the end of each month.
How to keep a record of limited company business expenses
When it comes to keeping track of your limited company’s business expenses, you must run a tight ship. HMRC may reject your expense claim if you don’t keep accurate records. It’s critical to keep physical and digital copies of all relevant receipts, whether they’re for business mileage, fuel costs, or equipment. You could make an expenses spreadsheet that you can update and amend throughout the year.
Limited company expenses you can claim
Health check and eye test expenses
If your employees spend a significant amount of time in front of a computer screen, they can claim eye tests and health checks as business expenses. Prescription glasses or contact lenses can be claimed as business expenses as well, but only if they’re used exclusively for screen-based work as part of their job.
Business insurance expenses
You can claim the cost of your business insurance policies as limited company expenses, as long as they’re used strictly for business purposes. Business insurances including public liability insurance, employers liability, professional indemnity insurance, and contents insurance are all allowable expenses.
Advertising, marketing, and PR expenses
You work hard to shout about your services through your advertising, marketing, and PR activity. And regardless if it’s a one-off cost or an ongoing fee, if the investment has been used solely for business purposes, then this can be claimed as one of your limited company expenses.
If you’re on a business trip and need to stay somewhere other than your home for the night, you can deduct the cost of your lodging. Food and beverage expenses can also be claimed as travel and subsistence expenses.
The bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Childcare costs aren’t directly related to business management, so they can’t be claimed as a business expense.
Use of home as office
If your home is the heart of your business, you’re able to claim a percentage of your household costs and utility bills as business expenses. This cost could be claimed as a rate of £4 per week or by working out what rooms you use for your business needs and the amount of time they’re used for work purposes. You’re also able to claim the costs of lighting, heating, postage and printing costs and accountancy and legal services as limited company expenses too – as long as they’re used solely for business purposes.
Gifts, entertainment, and trivial benefits
You don’t need to pay tax and National Insurance or let HMRC know about a gift or benefit for your employee (otherwise known as a trivial benefit) if the following rules apply:
It’s not set out in the terms of their contract
It’s not a reward for their performance or work
It isn’t cash or a cash voucher
It cost you £50 or less to provide
If you offer employees gifts or benefits that don’t match all of the criteria above, then you’ll need to pay tax on them.
Professional subscription expenses
Limited company expenses can be claimed for occupation-specific magazine subscriptions, journals, and books. For example, if you’re the editor of a photography magazine and you have a subscription to a competitor’s publication, you should be able to deduct the cost as a business expense because it allows your company to stay current on industry trends and competitors.
Work phone contracts and broadband payments can be claimed as a limited company expense. If your mobile phone contract is in your company’s name and used solely for business purposes, you can claim the entire bill as a business expense.
If it’s a personal contract, you’ll need to separate the business and personal use out and claim the business-related expenses only. You can also claim limited company expenses for the business calls you’ve made from your home phone line.
Annual staff party expenses
Whether it’s a Christmas bash or a summer staff party, you can deduct the cost of entertaining your employees as a business expense if it’s an annual event open to all employees and costs less than £150 per person.
The equipment you need to carry out your role as a limited company director, from computers and software to scanners and printers, can be claimed as business expenses. Office furniture, such as chairs and desks, can also be claimed if they are primarily used for business.
Professional development expenses
Personal development and training courses can be claimed as limited company expenses, just make sure you check it’s eligible before hitting the books. For example, if you’re an accountant, any training you undergo to become a chartered accountant is an allowable expense.
Travel expenses can be claimed as limited company expenses if:
You’re responsible for paying the travel costs
The travel is necessary for work purposes and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and permanent workplace.)
If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:
Car and vans – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
Motorcyclists – 24p per mile
Bicycle – 20p per mile
Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claim.
As well as the mileage rates listed above you can also claim the following as business expenses:
Road toll fees
Hotel rooms (within reason)
Food and drink on overnight trips
Public transport, including train, bus, air and taxi fares
Vehicle repairs and servicing
For up to seven years before a company begins trading, start-up costs can be claimed as limited company expenses. Laptops and computer software, internet and domain name fees, travel costs, and professional services such as accounting and legal assistance are all common pre-formation business expenses.
As a director of a limited company, if you choose to pay yourself a salary as an employee of your business, this, and the corresponding National Insurance Contributions (NIC), can be claimed as allowable expenses. Bear in mind that once you reach the National Insurance threshold, you’ll have to start to pay NICs.
You can contribute to your pension pot and receive 100 percent tax relief as a limited company expense once you’ve established an agreement with a pension provider. Keep in mind that the amount of money you can contribute tax-free to a pension scheme through your business or personally is limited to £40,000.
Generally speaking, spending money on business entertainment isn’t an allowable expense against profits. However, if you have to spend your own money on business entertainment as part of your duties as a limited company director, you may be able to claim it as a business expense. However, these business entertainment costs would be disallowed in the company profits, giving you the same result as not claiming in the first place.
Nobody wants to pay more tax than they have to, which is why keeping your business as tax efficient as possible could help save you a pretty penny.
If you’re finding the process of working out what allowable expenses your limited company can and can’t claim, get in touch with us for advice to make sure everything is above board.