Understanding the allowable expenses that you can claim as a limited company can help you to reduce your corporation tax bill.
According to HMRC, expenses that are incurred “wholly and exclusively” for the purpose of your business can be claimed against your income, such as office equipment, salaries and business insurance. If you pay for something that has a combination of business and personal use, for example, you take a work trip abroad and then spend a few extra days on holiday, only the business part of the cost is tax deductible.
It’s important to have a record of your limited company expenses so make sure that you keep receipts, invoices and any other important paperwork (big and small). You must keep records for 6 years from the end of the last company financial year they relate to, or longer if:
- they show a transaction that covers more than one of the company’s accounting periods
- the company has bought something that it expects to last more than 6 years, like equipment or machinery
- you sent your Company Tax Return late
- HMRC has started a compliance check into your Company Tax Return
There is no exhaustive list of allowable business expenses because every company is different but we’ve compiled a list below of some of the most common company expenses to get you started.
Allowable Revenue Expenditure
1. Travel expenses
- Flights, accommodation and meals while on a business trip
- Visas, inoculations, travel insurance, travel cancellation fees, roaming charges
- Travel and parking expenses when travelling to sites other than your regular workplace
- Lease on rental vehicles
- Rental vehicle insurance
- Licences, congestion charges and other business-related fees on vehicles
- You cannot claim expenses on your daily commute but if you’re travelling to and from a temporary place of work (for example, to a client’s office) using your personal vehicle you can claim for the mileage. HMRC publish a fixed rate for mileage, which you can claim without having to pay tax: for a car this is 45p per mile for the first 10,000 miles per year, and 25p per mile after this. The mileage allowance is designed to cover the car’s running costs and the fuel costs. You cannot claim for fuel as well as mileage.
No tax relief is allowed on penalties or fines. This includes speeding tickets and parking fines.
2. Motoring expenses (company vehicles)
- Breakdown cover, insurance
- Car repairs, servicing, MOTs and road tax
Expenditure on business entertainment or gifts is not allowable as a deduction against profits, and you cannot claim VAT back either. However, if the total cost of all assets gifted to the same person in the same basis period is not more than £50, and the gift bears the business name, logo or a clear advertisement, and does not include food, drink or tobacco, it is allowed.
Entertainment that is allowable
Staff entertaining is allowed, for example, an annual function, such as a Christmas party or summer BBQ.
Whether you are a one-person limited company or employ hundreds of staff, you are entitled to provide an annual event for yourself and any staff you employ and to reclaim the costs against the company, saving corporation tax. Your company may also be able to claim the output tax if it is VAT registered and use the standard rate VAT scheme (apportionment applies where non-staff are invited, such as spouses).
The cost per head can include accommodation, transport, food and drink but must not exceed the £150 threshold per head; not even by a penny. So, if the cost per head works out at £151, then £151 is taxable as a benefit-in-kind and has to be declared on form P11d. The cost per head is worked out by dividing the total cost of the party by the number of attendees, including non-staff. Therefore, if you are a one-person company and invite your partner, you can spend £300 tax free.
The party must also be open to all company employees. Not all employees have to attend, but they must be entitled to attend.
Another point to consider is that you do have to hold an event in order to reclaim the costs against your company. You can’t simply make a cash claim for £150.
This exemption does not apply to sole traders, clients, suppliers, subcontractors and partners of a partnership. The exemption is only available for limited companies.
4. Trivial benefits
The trivial benefit exemption is in addition to the £150 annual staff function. These two are separate exemptions covered by separate legislation. The cost of providing the benefit, or its average cost per person, must not exceed £50. The benefit is not cash or cash vouchers. Trivial benefits mainly consist of gifts to staff or members of their family on special occasions, such as Christmas, birthdays, marriage or the birth of a child. The exemption is an ‘all or nothing’ exemption: if the value of the benefit is £60, then the full amount of £60 is taxable; not just the £10 excess. Directors are subject to an annual cap of £300.
5. Pension contributions
If you pay employer pension contributions into a registered scheme, you may be able to claim tax relief. (If you die before your 75th birthday and your pension funds are ‘designated’ to your beneficiaries within two years they will be paid tax free).
6. Work clothes
HMRC allows for the deduction of the cost of clothing for work if it wouldn’t ordinarily be worn outside of work. According to HMRC, fixing a permanent and conspicuous badge to what would otherwise be ordinary clothing may be enough to make it a uniform (EIM32475). You can therefore get your T-shirts, fleeces, jackets, etc. printed with a permanent and conspicuous logo. Ideally, this will then be allowed as work uniform but it could also be considered to be an advertising expense. However, every business is different. Therefore, please contact us before claiming this relief.
7. Mobile phones for employees
The provision of mobile phones for employees is a tax-free benefit when the phone contract is directly with the company and the bills are paid directly from the company bank account. The mobile phone will be the property of the company and it is one phone per employee.
8. Eye tests and glasses
When your role requires you to use a visual display unit (VDU), the company can provide eye tests, contact lenses or glasses tax- and NIC-free, subject to certain conditions.
9. Home office rent
Rental income does not attract national insurance or dividend tax, which makes it an attractive method of withdrawing profits from the company. Rent should not exceed a normal commercial rent payable to a third party (so it is only worth charging rent if the majority of the work is done from home).
You can claim corporation tax relief on donations made to charities and to community amateur sports clubs.
11. Childcare scheme
12. Business insurance
13. Personal development, subscriptions and membership of professional bodies
14. Training courses related directly to your job
You can also claim travel and accommodation while attending a training course.
15. Advertising and marketing costs
16. Accountancy, payroll and bookkeeping costs
17. Bank charges and credit card charges
18. Computer consumables, such as software and hosting
19. Printing, post and stationery
20. Business premises costs, such as rent, rates, insurance and cleaning
21. Data protection registration and renewal fees
22. Wages, salaries and recruitment costs
23. Telephone and broadband
24. Goods for resale
A deduction from your taxable profit can be made in respect of your expenditure on ‘fixed assets’. So what are fixed assets? Fixed assets are tangible assets held by an entity for the production or supply of goods and services and are expected to be used for more than one accounting period. The following are some examples:
1. Plant and machinery
2. Cameras, projectors and screens
3. Computers and printers
5. Office furnishings, including carpets and curtains
6. Office furniture, including desks, chairs and filing cabinets
7. Telephones, including mobile phones
8. Structures and buildings allowance
This relief is effective for buildings where contracts for the physical construction works were entered into after 29 October 2018. The relief is given over 50 years at a rate of 2% per annum.