What expenses can I put through my limited company?

by Abbas Gulamhusein

Running a limited company means you only pay corporation tax on profit, not on revenue. That profit is calculated by taking your income and subtracting your expenses. But not every expense you incur gets deducted. HMRC has rules about what you can claim, and understanding those rules is the difference between paying the right amount of tax and overpaying significantly.

The Basic Test

The core rule is simple in principle but requires judgment in practice: an expense is deductible if it's wholly and exclusively for the purposes of the trade. That's the test. Not partially for your business and partially for personal use. Wholly and exclusively. This disqualifies anything with a personal benefit element. If you do something for business and personal reasons, it doesn't pass the test, even if the business use is the primary reason.

This doesn't mean your business expenses need to be spartan. It means they need to be actually for the business, not for you personally.

Legitimate Business Expenses

Most common business expenses are simple to claim. If you rent separate office premises or pay utilities for a dedicated workspace, that's deductible. Broadband and phone lines used for business are deductible. Salaries you pay to employees are deductible, including your own director's salary, plus the employer's National Insurance on top. Professional fees paid to accountants, solicitors, or tax advisers for business matters are deductible. Business insurance is deductible. Equipment and technology you use for the business are deductible. Marketing and advertising costs are deductible. Training and professional development directly related to your business are deductible.

These aren't grey areas. They're standard and HMRC expects to see them in company accounts.

The Grey Areas

Where the confusion starts is the items that could go either way, depending on how you use them. Vehicles are a common one. If your company owns a car and you use it for some business travel, HMRC doesn't allow you to claim the cost of the car itself as a business expense in the usual way. Instead, a benefit-in-kind charge applies. You calculate the charge based on a percentage of the car's list price, and you pay income tax on that benefit. The percentage varies by emission levels. An electric car has a much lower benefit-in-kind charge than a petrol car. A Van, on the other hand, is treated differently. If your company owns a van and it's only used for business purposes, you don't get a benefit-in-kind charge on a director, assuming it's kept at the company premises. You do get to claim the van as a business asset with capital allowances. The distinction matters enormously.

Working from home creates another grey area. If you use part of your home as a dedicated office, you can claim a contribution towards your home running costs like a proportion of rent or mortgage interest, council tax, or utilities. But the claim is limited. You can't claim 50% of your mortgage just because you have a desk in your spare room. HMRC looks at whether you have a dedicated workspace, what proportion of your home it represents, and whether the claim is reasonable.

Mobile phones are simple. Your company can provide one mobile phone per employee or director with no personal benefit-in-kind charge, and the contract costs are deductible. Two phones would be a personal benefit and would be taxable.

Christmas and staff entertaining is surprisingly tightly regulated. The good news is that up to £150 per head per calendar year can be spent on staff entertaining without triggering a tax charge. That includes all employees and directors. Your Christmas party, team lunch, or celebration event is deductible up to that cap per person. But entertaining clients or business associates is explicitly not deductible for corporation tax purposes, even though it's a genuine business cost. This surprises a lot of people because entertaining staff is deductible but entertaining customers is not. The rule is oddly written, but that's how it works.

Records and Documentation

Keeping records isn't optional. HMRC expects you to keep business records for six years. That includes invoices, receipts, payroll records, and any supporting documentation for expenses you've claimed. Digital records through accounting software are the best approach because they're easy to store and easy to retrieve if HMRC asks questions.

For expenses without invoices, you need to be able to explain what the cost was for. Cash expenses are particularly important to document because HMRC scrutinises them. If you've paid a £500 cash expense for repairs or supplies, you should have a note of what it was for and ideally some corroboration.

The reason records matter isn't bureaucracy. It's because HMRC will challenge expenses they think are personal or inflated. If you can't back up your claim with documentation, they'll disallow it. And you'll pay the tax plus interest plus penalties.

Capital Expenditure

One thing worth understanding is that not all business spending is an expense. If you buy a computer for £1,200, you can't deduct the full £1,200 in year one. It's a capital asset, and you claim it through capital allowances over several years. Annual investment allowance lets you deduct up to £1,000,000 of capital spending per year in full, but above that, different rules apply. This is worth discussing with your accountant when you're buying equipment or making large one-off purchases.

Practical Approach

The right approach to claiming expenses is this. If the cost is actually for the business and not for your personal benefit, claim it. If it's borderline and you're not sure, discuss it with your accountant before you put it through the books. That way, if HMRC questions it, you've got professional judgment to back you up. Claiming something you're unsure about and then having to defend it to HMRC is far more costly than getting advice upfront. HMRC takes a view on borderline items based on case law and guidance, and your accountant knows what that view is.

The test is always the same: is this wholly and exclusively for the purposes of the trade? If the answer is yes, claim it. If the answer is no, don't. And if you're not sure, ask before you claim.

If you'd like to talk through what expenses are deductible for your specific business, get in touch with us at Saymur.