Claiming Limited Company Expenses
As a company director you are required to maintain an accurate account of the business’s finances. One of the biggest challenges can be keeping track of all the expenses incurred in the business.
This guide will give you information on many of the various expenses you can claim. We cover most of the common business expenses, some you may never have thought you could claim.
What is tax relief?
The allowable business expenses you claim through a limited company reduces the amount of corporation tax charged on the profits of the company. Therefore, more allowable expenses results in lower taxable profit and a lower corporation tax charge.
HMRC will allow the claim if the expenses are defined as “wholly and exclusively” incurred in the performance of the business. If there’s a dual purpose for the expense (i.e. if the purchase is used personally) then it is unlikely to be accepted as tax deductible (unless the dual purpose is only incidental).
Your company’s expenses can be paid for in two ways, either directly through the company bank account or as a reimbursed expense when expenses are paid using a personal bank account or personal cash.
Tax relief can be claimed on the full cost of your accountancy fees provided they are incurred on work for your company.
Accountancy services provided for personal use would not be allowable as a business expense.
Tax relief can be claimed on accommodation costs when traveling for business, provided the expense is “reasonable” and not excessive.
If staying overnight in accommodation then “overnight incidental costs” can also be claimed at the following rates:
- £5 per night for travel within the UK
- £10 per night for travel outside of the UK
(Meal costs are also claimable; see Travel and Subsistence below.)
If you use your personal vehicle for business travel you can claim for the mileage covered at the following rates:
- Cars and Vans
- 45p per mile on the first 10,000 miles per tax year
- 25p per mile on additional mileage
- 24p per mile
- 20p per mile
(Other travel costs can also be claimed; see Travel and Subsistence below.)
You are entitled to hold annual events (such as a Christmas party) as a tax fee benefit providing the following conditions are met:
- You may invite a partner, but the expense must not exceed £150 per head. So for a sole director company plus the partner, would give you a maximum budget of £300.
- The event must be mainly for employees.
- For multiple events over the year, note that the £150 budget is for the annual cost.
Pre-trading expenses such as company formation fees and associated accountancy fees can be claimed.
Charitable donations made to a registered charity, provided they are “wholly and exclusively” for the purposes of trade are allowable.
Although costs incurred on client or supplier business entertaining can be paid for through the business, these expenses are not tax deductible. The expenses will be added back to profits before calculating the corporation tax charge for the company.
(Staff entertaining is allowable; see “Christmas / Annual Staff Outing” and “Trivial Benefits”.)
This covers items that are used in the business and have no or insignificant personal use. Items can include computers, printers, software and office furniture.
You can claim these costs provided they are necessary for using visual display equipment in your duties within the business.
If spectacles or contact lenses are also used personally, they have a dual purpose, and so would not be an allowable expense.
A gift to someone outside of the company does qualify for tax relief provided it includes a conspicuous advertisement of the business, it does not consist of food, drink, tobacco or vouchers and is under £50.
A company can make pension contributions to your pension and receive full tax relief on the cost, though there are restrictions on how much the company can contribute.
Please contact a financial advisor for more information on choosing the right type of pension scheme for your circumstances.
Provided they are used in the business these costs are claimable.
A full list of HMRC approved bodies is available at the following link; Subsciptions List
A salary paid to a director or employee is an allowable company expense as are employer national insurance contributions.
For small companies where a director does not earn employment income elsewhere, it is often tax efficient to pay a director’s salary up to the national insurance threshold.
A separate business telephone / broadband line is an allowable company expense, provided it is used “wholly and exclusively” for the business.
The business can also provide the directors and / or employees a mobile phone for work use. No issue will arise from personal calls from the mobile.
If however you use a personal home or mobile line for business then you cannot claim for the line rental or monthly contract. Though you can still claim for the extra costs of business calls on this line.
Costs of training courses are allowable provided the training is aimed at improving the skills you currently apply in the business.
On the other hand, the costs would not be allowable if the training offered new skills and knowledge rather than building on existing skills.
All travel costs incurred for journeys to and from temporary workplaces are allowable for employees / directors. This includes journeys made between destinations during work.
Actual meal costs during worktime at a temporary workplace are also allowable.
A workplace is considered temporary if the following conditions apply:
- Your contract with the client is less than or expected to be less than 24 months.
- Up to 24 months if the contract is of an uncertain period.
Also, if you do breach the 24 month rule your workplace may still be considered temporary if:
- Less than 40% of your working time is spent at the location.
The rules around trivial benefits for employees were recently amended to allow companies a further way of incentivising employees.
In order to provide trivial benefits for employees / directors the following conditions must apply:
- The benefit must not exceed £50, each time you provide the benefit.
- The benefit must not be a cash payment, though gift vouchers are allowed (provided they can’t be exchanged for cash).
- The benefit must not be part of an obligation for the company or pay for the services of an employee.
- If the benefit is for a director, the annual limit is £300.
Examples of trivial benefits can include gift vouchers, flowers, wine and taking staff out for meals (in addition to the £150 annual staff entertaining allowance).
If it is necessary for you to work at home for your business, then you can claim for a use of home expense through the company.
HMRC will allow you to claim £4 per week without proof of expenditure, however if you think the claim should be higher than this, you can calculate an amount based on a percentage of actual home expenses.
Please note, claiming a percentage of your household costs for business purposes can result in unforeseen tax complications when selling your property; so care should be taken on how you calculate a reasonable home expense.