Every legitimate business expense reduces your company’s taxable profit, which means you pay less Corporation Tax. The current rate is 25% for profits over £250,000 (with a small profits rate of 19% for profits up to £50,000 and marginal relief in between), so every £1,000 of allowable expenses saves your company between £190 and £250 in tax.
This guide covers what a UK limited company can and cannot claim, the documentation you need, and the rules HMRC applies.
The Basic Rule
An expense is tax-deductible if it is incurred wholly and exclusively for the purposes of the trade. This is the test HMRC applies to every expense. If an item has both a business and personal purpose, the business element may be deductible if it can be separately identified.
Office and Premises Costs
| Expense | Deductible? | Notes |
|---|---|---|
| Office rent | Yes | Full amount |
| Business rates | Yes | Full amount |
| Utilities (gas, electricity, water) | Yes | Full amount for business premises |
| Office insurance (building, contents) | Yes | |
| Office cleaning | Yes | |
| Repairs and maintenance | Yes | Like-for-like repairs; improvements are capital expenditure |
| Security systems | Yes | |
| Serviced office / coworking membership | Yes |
Working From Home
If a director works from home, the company can pay a home office allowance without tax or NIC implications:
| Method | Amount | Documentation |
|---|---|---|
| HMRC flat rate | £6/week (£26/month) | No receipts needed |
| Actual costs | Variable | Detailed calculation of business proportion of household costs |
The flat rate is simple but modest. Calculating actual costs (proportion of rent/mortgage interest, council tax, utilities, broadband, insurance) usually gives a larger deduction but requires records to support the calculation.
The payment is tax-free for the director and deductible for the company.
Travel and Subsistence
Business Travel
- Train, bus and tube fares for business journeys
- Flights for business trips
- Taxis when other transport is impractical
- Parking at business destinations
- Congestion charge and toll fees for business journeys
- Hotels for overnight business trips
- Meals while travelling on business (reasonable amounts only)
Commuting (home to a permanent workplace) is never deductible, even for company directors. However, if your home is your main place of work and you travel to a client site or temporary workplace, that journey is a business journey.
Company Vehicle vs Personal Vehicle
| Option | How It Works | Tax Impact |
|---|---|---|
| Company car | Company buys/leases the car; driver pays BIK tax on personal use | Company deducts costs; employee pays BIK based on CO2 emissions |
| Mileage allowance | Employee uses own car, company reimburses at HMRC rates | Company deducts the reimbursement; no BIK if within HMRC rates |
HMRC mileage rates for reimbursing employees using their own vehicle:
| Vehicle | First 10,000 Miles | Over 10,000 Miles |
|---|---|---|
| Car | 55p | 25p |
| Motorcycle | 24p | 24p |
| Bicycle | 20p | 20p |
Staff Costs
| Expense | Deductible? | Notes |
|---|---|---|
| Salaries and wages | Yes | Must be reasonable for the work performed |
| Director salaries | Yes | Must be commercially justifiable |
| Employer NIC | Yes | 15% above the secondary threshold |
| Pension contributions | Yes | No annual limit for employer contributions |
| Staff training (job-related) | Yes | Must be relevant to the role |
| Recruitment costs | Yes | Agency fees, advertising |
| Staff welfare | Yes | Tea, coffee, fruit, reasonable refreshments |
| Annual staff party | Yes | Tax-free for employees if under £150 per head, open to all staff |
Paying Family Members
You can employ your spouse, partner or family members and the salary is deductible. However, it must be commercially reasonable for the work performed. Paying your partner £30,000 for occasional admin work will not survive an HMRC enquiry. Paying them £10,000 for genuine, documented part-time work is defensible.
Professional Services
- Accountancy and audit fees – fully deductible
- Legal fees – deductible if related to trading activity (not capital transactions)
- Bank charges – fully deductible
- Loan interest – on business borrowings
- Debt collection – fees for recovering unpaid invoices
- Insurance – professional indemnity, public liability, employers’ liability, D&O, cyber
- Professional subscriptions – if relevant to the trade
Technology and Equipment
| Item | Treatment |
|---|---|
| Computers, laptops, monitors | Full deduction in year of purchase (AIA) |
| Software subscriptions (SaaS) | Deductible as ongoing revenue expense |
| Phone and broadband | Business proportion |
| Printers, scanners, peripherals | Full deduction (AIA) |
| Office furniture | Full deduction (AIA) |
| Machinery and plant | Full deduction (AIA, up to £1,000,000) |
The Annual Investment Allowance (AIA) of £1,000,000 means virtually any equipment purchase by a small company qualifies for 100% deduction in the year of purchase.
Software and Digital Tools
Monthly subscriptions for business software (accounting, CRM, project management, design, communication tools) are fully deductible as revenue expenditure. There is no need to capitalise them.
Marketing and Advertising
- Online advertising – Google Ads, Facebook, LinkedIn, Instagram
- Website costs – hosting, domain registration, design (if revenue expenditure)
- SEO and content marketing services
- Print advertising – newspapers, magazines, trade publications
- Business cards and brochures
- Trade shows – stand hire, materials, travel
- Sponsorship – if genuinely for business promotion
- PR and marketing consultancy
Entertainment
This is the area where the rules are strictest:
| Type | Corporation Tax Deductible? | VAT Recoverable? |
|---|---|---|
| Client entertaining | No | No |
| Supplier entertaining | No | No |
| Staff entertaining (annual event, under £150/head) | Yes | Yes |
| Staff entertaining (other, e.g., team lunches) | Yes (for the company) | Yes |
| Directors’ meals (while travelling on business) | Yes | Yes |
The client entertaining rule catches many business owners. Taking a client for lunch, buying drinks at a networking event, or hospitality at a sporting event – none of this is deductible, no matter how strong the business justification.
Staff entertaining is deductible for the company. The £150 per head annual exemption means one or two annual events (Christmas party, summer party) are tax-free for employees and deductible for the company.
Dividends vs Expenses
Directors sometimes wonder whether to take money as a dividend or claim it as an expense. The answer is straightforward:
- If it is a genuine business expense, claim it as an expense (the company gets Corporation Tax relief)
- If it is personal spending, it is not an expense and should be funded from salary or dividends
- Never claim personal expenses through the company – this is a common cause of HMRC enquiries and inflates your director’s loan account
Director Expenses and Reimbursements
When a director incurs expenses personally on behalf of the company:
- The director pays for the item
- The director submits an expense claim with a receipt
- The company reimburses the director
- The reimbursement is tax-free for the director and deductible for the company
This only works if the expense is a legitimate business cost. Keep receipts for everything.
What You Cannot Claim
| Expense | Why Not Deductible |
|---|---|
| Client entertaining | Specifically disallowed by HMRC |
| Fines and penalties | Not exclusively for business purposes |
| Political donations | Not a trading expense |
| Everyday clothing | Not exclusively for business (uniforms and PPE are fine) |
| Personal expenses | Not for the purposes of the trade |
| Depreciation | Replaced by capital allowances for tax purposes |
| Capital repayments on loans | Only interest is deductible |
Record Keeping
For every expense claimed, the company must retain:
- A receipt or invoice showing date, supplier, amount and description
- For VAT recovery, a valid VAT invoice with the supplier’s VAT number
- For mileage, a mileage log with date, destination, purpose and distance
- For mixed-use expenses, a note explaining the business proportion
Records must be kept for 6 years from the end of the accounting period. Digital records are acceptable and encouraged under Making Tax Digital.
Maximising Your Claims
- Review bank statements monthly – flag transactions that need categorising
- Keep every receipt – use a receipt scanning app to capture them immediately
- Claim home office costs – even the flat rate of £6/week adds up to £312/year
- Claim mileage – business journeys in your own car at 55p/mile add up quickly
- Review insurance and subscriptions – ensure all business insurance and professional subscriptions are claimed
- Use accounting software with bank feeds – automated categorisation ensures nothing falls through the gaps
- Talk to your accountant before the year end to identify any missed deductions