Are you a seasoned veteran of running a limid company or just starting out for the first time as a company director? Whatever the case, there are often business expenses that go unclaimed, which means you could end up paying more tax than you need to. We’ve put together this article to help you make the most of the tax relief available to you.
Being savvy with your expenses is a large part of running a successful business, regardless of its size. Claiming business expenses is a simple way to keep your business tax-efficient – it reduces your profit, which in turn reduces your Corporation Tax liability and payments. By claiming every allowable expense, you’re making sure you don’t pay a penny more in tax than you have to.
Note: The corporation tax rates are changing from April 2023. Find out more in our Corporation Tax 2023 article.
Remember: the general rule is that expenses must be “wholly, exclusively and necessary” for business purposes. However, HMRC rules can be complex and are often based on concepts such as the ‘fairness’ and ‘reasonableness’ of expenses claimed. There may also be an impact on the amount of personal tax you pay.
In this article, we’ll be running down all the main types of HMRC approved business expenses you can claim as a limited company for tax purposes. We’ve also got a separate article with a run-down of all the expenses you can claim as a sole trader, too.
But it’s not just about knowing what to claim, how do you actually go about claiming it? Do you just keep a list, or throw all the receipts in a shoebox? (here’s our first tip – don’t just do that!)
If you need help with your limited company accounts or in claiming your expenses, you can give our expert advisors a call and discover how Crunch can help your business.
What is tax relief for limited companies?
Allowable business expenses reduce the amount of profit on which limited companies pay Corporation Tax. So, more allowable expenses means less taxable profit and less tax to pay. As you always want to keep on HMRC’s good side, you need to make sure you only claim for expenses that are on HMRC’s approved list.
To account for your expenses properly, you need to keep accurate records of everything. Bear in mind that you’re legally bound to keep these records for at least six years.
As ever, HMRC rules on what is tax-deductible can be complex and are often based on concepts such as the ‘fairness’ and ‘reasonableness’ of expenses claimed. When in doubt, always contact an accountant such as Crunch for advice.
Claiming expenses as a limited company
You can either pay your company’s expenses directly from the company business bank account or as a ‘reimbursed expense’ when paid by you personally. It’s important to remember to keep an accurate record any time you reimburse yourself from the company funds.
If you run a small business, your employees can also claim expenses, so it’s good practice to have a company expense form and policies – i.e. how much employees are allowed to spend and in what situations – and collect and file all the expense claims at the end of each month. Here, it’s also important to stress that your employees must keep all receipts to be able to reclaim any expenditures.
How to keep a record of my limited company business expenses
Keeping track of your limited company business expenses such as business mileage is essential, as, without the breakdown of journeys and mileage covered, HMRC could refuse to accept your claim.
We suggest detailing all your business mileage on a spreadsheet and keeping it up-to-date throughout the year. Or if you’re a Crunch client use our free Tripcatcher app to automate things and make the process even easier. If you’re claiming tax relief for fuel when using a company-owned car, you must keep hold of all of your receipts. We’ve got an article explaining everything you need to know about business mileage.
Download our Crunch Business Mileage spreadsheet
For other business expenses, the cost of anything that’s necessary for running your limited company will receive tax relief – the trick is to make sure you meticulously record everything so you don’t lose out. You’re not limited to a certain amount of supplies, within reason.
If you’re not using online accounting software (Tip 2 - you should be - we’ve even got free software that lets you do this for your limited company) the best way to keep track of what you’ve spent on supplies and other expenses such as travel and subsistence is, again, in a spreadsheet.
The main difference is you don’t have to record each item separately – for example, if you have bought 10 packs of 100 pens at £3 each, you can record it as 1000 pens – £30. It is, however, important to keep the receipts for every separate purchase. Receipts must be kept for six years after you have filed your returns, as HMRC could decide to investigate at any point within this time.
If you’re just away for the day, you can claim lunch costs if you exceed five working hours, this extends to dinner if you’re working up to ten hours. As always, ensure that you keep receipts for everything.
It’s also advisable to log all expenses in your accounting software, or on a spreadsheet so that you always have the date and exact costs at hand in case HMRC decides to take a closer look. Be aware that HMRC takes a dim view of excessive use of taxis, particularly if they appear unnecessary – i.e. it was a very short journey.
Download our Crunch Business Expenses spreadsheet
Storing receipts can be done in a variety of ways and it’s always best practice to keep the paper copies somewhere safe, as well as backing them up digitally – with a picture on your phone for example (receipts tend to fade, but digital backups will remain pristine forever). You can manually scan them or use a mobile app like our Snap app to record the details.
Accountancy fee expenses for limited companies
You can claim tax relief for the full cost of your limited company’s accountancy fees, providing the accountants’ time is spent working wholly on your company’s affairs.
If the accountants provide advice or spend time working on your personal affairs (such as preparing your personal tax return) this can be included in your limited company accounts but will be taxable to you personally and needs to be recorded as a ‘benefit in kind’ (BIK).
In addition, your company will pay National Insurance Contributions at 13.8% on the BIK for the 2023/24 tax year (the 2022/23 rate was 14.73%).
Accommodation costs and expenses whilst on business travel
You can claim expenses for accommodation costs when you travel to a temporary workspace or location for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question any excessive claims for expensive hotels or apartments with more than one bedroom. So, sorry, but staying at the Ritz is probably not going to be acceptable!
At Crunch, we’ve developed a mobile app to simplify recording expenses. Through our ‘Snap’ app, you can take a photo and have the details automatically uploaded to your Crunch account.
Advertising, Marketing, and Public Relations (PR)
Generating leads and advertising is an important part of running a successful business. You need to make sure that your potential customers know about your products or services, which is where advertising, marketing, and PR comes in.
This may be a one-off cost or an ongoing charge and as long as the service is exclusively for your business then the cost could be classed as an expense.
Bank, credit card and other financial charges
Many types of bank charges can be claimed as an allowable business expense, though they must be for accounts or cards in the name of the business. You can claim business costs for:
- Bank, overdraft and credit card charges the interest on business and bank loans (but not repayments of the capital or loan amount )
- Hire purchase interest
- Leasing payments
- Alternative finance payments, for example, Islamic finance.
You cannot claim for repayments of personal loans, overdrafts or finance arrangements.
Business Insurance policies
You can claim for any insurance policy for your business, for example, professional indemnity insurance or public liability insurance. Find out more about Small Business Insurance and you can even get a discounted quote as a Crunch client or Crunch Chorus member.
Business mileage expenses
If you’ve used your personal car or van to get to a temporary place of work and paid for the fuel personally, you’re entitled to get this back from your company. You can even claim mileage expenses if you ride a bike. But no matter how you travel you cannot claim for miles commuting to your regular workplace.
If you use your personal vehicle for business travel to a temporary workplace or location you can claim the following rates:
The great thing about this is that not only does the business expense reduce your overall Corporation Tax bill, it also means you can reimburse yourself the amount claimed.
If your company owns the car, however, you can only claim the cost of fuel.
For more information on company cars check out our article on the Taxation of Company Cars.
We also provide a mobile app for Crunch clients to simplify recording your mileage. Our ‘Tripcatcher’ app streamlines the process of claiming by recording mileage, setting recurring mileage and integrating with your Crunch account.
You can use our business mileage tax calculator. We’ve got an article explaining everything you need to know about business mileage.
Car, van and travel expenses as a limited company
Your travel expenses are generally tax-deductible where all the following conditions apply:
- You are responsible for paying the travel costs
- The travel you are undertaking is necessary for your work, i.e. your attendance at the place you are travelling to is mandatory
- The travel should not be ‘ordinary commuting’. HMRC defines a commute as the journey you make between your home and permanent workplace.
Our article “What sort of travel can I claim for as a limited company?” gives you all the information you need to understand what you can and can’t claim.
Things you can claim allowable business expenses for:
- Vehicle insurance
- Repairs and servicing
- Hire charges
- Vehicle licence fees
- Breakdown cover
- Train, bus, air and taxi fares
- Hotel rooms
- Meals on overnight business trips
Things you can’t claim for:
- Non-business driving or travel costs
- Travel between home and work
Charitable donations as a limited company
Your limited company pays less Corporation Tax when it gives the following to charity:
- Equipment or trading stock (items your company makes or sells)
- Land, property or shares in another company (shares in your own company don’t qualify)
- Employees (on secondment)
- Sponsorship payments.
You can claim tax relief by deducting the value of your donations from your total business profits before you pay tax. We explain things in more detail in our knowledge article on donating to charity.
Childcare costs and expenses
HMRC does not allow childcare as a legitimate business expense, however, employees themselves (including limited company directors) can claim tax relief through their salary payments up to a certain amount each month with one of two approved schemes.
The Childcare Voucher scheme was withdrawn by the government on 4th October 2018 and is closed to new entrants. If you were set up on the Childcare Voucher Scheme before this date you may continue to use the scheme.
Tax-Free Childcare scheme
In 2017, the government started to roll out a new Tax-Free Childcare scheme for parents and carers. Read our Tax-Free Childcare article for the full details.
Please note that your limited company cannot provide an employee with childcare using both schemes at the same time, it’s one or the other. We have the following article that explains all the changes to childcare announced in the April 2023 Spring Statement.
Christmas party and staff event expenses through your limited company
Your company can host an annual event – most commonly a Christmas party – as a tax-free benefit, providing you meet certain conditions.
Your employees may invite a partner but you must not exceed an expenditure of £150 per head (including VAT). The event must cater mostly for staff. For example, expenses for one director and a plus one would be acceptable and would give you a budget of £300.
However, if those attending are not mostly employees then it would be difficult to argue the event’s main purpose is to entertain staff. Note that the £150 amount is an annual limit and can cover multiple events for staff.
With certain, limited exceptions, expenditure on business entertainment or gifts is not allowable as a deduction against profits, even if it is a genuine expense of your trade or business. Tax relief is therefore not available.
If you’ve incurred the cost of business entertaining personally you may be able to claim the expense as being incurred in the performance of your duties as a director. These costs would be disallowed in the company profits, so the net effect would be the same as not claiming the expenses in the first place.
Equipment expenses for your limited company
The cost of anything that’s necessary and essential for your duties as a director will receive tax relief. This covers computer equipment, printers, and software. You may also claim reasonable relief towards the cost of equipping/furnishing an office, e.g. chairs, bookcases and so on.
This may appear to hold a dual purpose, but it’s allowed because it is a consequence of a business need. As long as the personal use is insignificant it will not be treated as a ‘benefit in kind’ and you won’t have to pay personal tax on it.
With more people working from home than ever, we’ve got a separate article with information on what you can claim as allowable expenses when you work from home.
If your company takes on any employees (and this includes you as a director) then the company will be able to claim their salaries as an expense.
Business expenses that employees incur can be claimed, provided HMRC’s allowable expenses rules are met. You should maintain records of all expenses your company pays in case HMRC asks for evidence of these.
If you have employees, you can claim staff costs including the following:
- Employee or staff salaries
- Agency fees
- Employer’s National Insurance
- Uniforms for employees
- Training courses.
Eye tests and glasses or spectacles
You can claim for vision tests providing it’s necessary for the initial or continued use of visual display equipment in your duties. However, you aren’t able to claim for glasses or contact lenses unless they’re prescribed during your time at work, specifically for ‘monitor or screen work’.
Fees and expenses for forming your limited company
The costs associated with setting up your limited company are business expenses and attract tax relief. This covers all the relevant expenses, anything from printing to supplying the necessary equipment for your company. Any accountancy fees or mandatory company formation costs you pay can also be claimed.
Crunch can take care of your company formation for you – it’s free if you take an accountancy package from us.
Fixed assets and disposals of fixed assets
As long as they’re entirely for business use, items such as laptops, PCs, business phones and furniture for an office can be recorded as a fixed asset in your company accounts. If the asset is obsolete or no longer used by your company, you may decide to dispose of it.
Whether you continue to use a fixed asset, sell old models or scrap them, HMRC will need to know in order to ensure it’s correctly accounted for each year.
Although the purchase of fixed assets aren’t expenses that reduce company profits, you receive capital allowances to reduce the amount of Corporation Tax paid by your company.
General office costs and purchases for your limited company
Minor purchases with receipts that are used wholly, exclusively, and necessarily in the performance of your duties are claimable. This includes postage, computer consumables, and office stationery.
Gifts and trivial benefits from your limited company
You don’t have to pay tax on a gift or benefit for your employee if all of the following apply:
- It cost you £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for their work or performance
- It isn’t in the terms of their contract.
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HMRC know.
You have to pay tax on any gifts or benefits that don’t meet all these criteria.
Legal and other professional fees
As long as they are directly related to your business, legal fees and other professional fees are allowable.
Medical insurance (Healthcare) expenses through your limited company
Your company may provide financial support towards medical insurance for employees. This is regarded as a ‘benefit in kind’ and the employee must pay personal tax on it. Your company will be liable to pay National Insurance Contributions at 13.8% for the 2023/24 tax year (in 2022/23 the rate was 14.73%).
Your company can provide the following and claim tax relief:
- Medical insurance for an employee working abroad
- An annual check-up.
Mobile phone, landline and broadband expenses as a limited company
If your landline phone contract is only for business use, this is an allowable company expense and you won’t be taxed personally. By having a separate phone line for ‘only business’, it shows this is 100% for business.
For mobile phones, provided the contract is between the company and the mobile phone provider, the company can claim all costs as an allowable expense.
If your company pays your entire personal phone bill, you’ll have to pay a ‘benefit in kind’ (BIK) charge on the total amount of the bill. Your company will be liable to pay National Insurance Contributions at 13.8% for the 2023/24 tax year (in 2022/23 the rate was 14.73%) on the same amount (minus the cost of any business calls you can identify).
If you make a claim for business only calls made on your personal mobile or landline phone bill, this is an allowable expense provided you can prove it was a business call. You can also reclaim the VAT element of the business calls (if you‘re VAT registered), but you won’t be able to reclaim any part of the line rental, as you would incur this cost anyway.
It’s increasingly difficult to separate the cost of business calls, given the way mobile (and many landline) phone operators package call costs (e.g. ‘up to 2,000 free monthly minutes’).
If you can’t separate the business element from your personal use of your mobile phone, you cannot make a claim, due to the duality of purpose rules, as any business calls you make incur no extra cost on top of the tariff you already pay for personal calls.
If you start to carry out some of your work from home, using your residential broadband, you cannot make a claim if the broadband was already in place, unless you can clearly split the business from the personal element. Having two broadband lines could show one line is 100% for business.
If you have no broadband contract at home and need internet access to carry out your business, the costs can be reclaimed from your company, and no ‘benefit in kind’ charge arises.
Pension payments through your limited company
Once your company has set up a contract with a pension provider it can make payments into your pension and receive 100% tax relief as an allowable business expense.
In the 2023/24 tax year there’s a limit of £60,000 on how much you can contribute free of tax to a pension scheme either through your company or personally (this was £40,000 in the 2022/23 tax year). We’ve written a more detailed article about making pension contributions through your limited company.
Please speak to your financial advisor for more information as they can advise in more detail on this matter. If you don’t have a financial adviser then speak to our Investment and Pensions partner to see how they can help.
Professional subscriptions such as membership of a trade body, or registrations needed in order to enable you to trade are allowable, provided they are HMRC approved professional bodies which are relevant to your employment. If it is not directly relevant, then it’s not allowed. Membership of your local golf club is not going to be allowed - no matter how much you think it may help your business!
A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance Contributions (NICs).
You may pay a tax-efficient salary up to the relevant National Insurance threshold, i.e. before you become liable to start paying NICs. You’ll be more tax-efficient by paying a lower monthly salary, because after you cross the relevant NI threshold you’ll have to begin paying NICs.
For more information on tax-efficient salary levels see our “How much should I take as a salary?” article.
Training expenses through your limited company
You can claim for training courses that are aimed at improving the skills you apply in your work. Additionally, you can claim travel and accommodation while attending a training course.
HMRC often disallow expenses for courses such as MBAs, as they offer new skills and knowledge rather than building on existing skills. In certain situations, they are allowed, but only if you demonstrate that they are reinforcing/improving your existing knowledge/skills.
Travel and subsistence expenses as a limited company
If you have to travel for your work you may be able to claim tax relief on the cost or money you’ve spent on food or overnight expenses. You can claim tax relief for money you’ve spent on things like:
- public transport costs
- hotel accommodation if you have to stay overnight
- food and drink
- congestion charges and tolls
- parking fees
- business phone calls and printing costs.
You can’t claim for travelling to and from work, unless you’re travelling to a temporary place of work. See our article “What sort of travel can I claim for as a limited company?” for more explanation of the rules about what you can claim and an explanation of how HMRC classifies a temporary place of work.
Use of your home as an office when you’re a limited company
Working through a limited company means if you work from home, from April 2020 the amount HMRC allows you to claim is £6 each week without keeping any detailed records – this equates to £312 per year. The other good news is that HMRC doesn’t believe this to be a benefit in kind, which means you won’t have any tax to pay on this through your Self Assessment.
As always, there are rules: you must be able to prove that you regularly spend time doing your job in this office space, so you can’t just use your home office for a small bit of administration while the majority of your work is done on-site or at client offices.
Equipment that is necessary and essential for your professional duties will receive tax relief. You may also claim reasonable relief towards the cost of equipping/furnishing an office (for example chairs or bookcases).
You can learn more about the expenses you can claim when you work from home in our “Working from home” article.
Renting your office to your business
You might be able to rent your personal workspace in your home to your limited company and claim that as an expense. You’ll need to declare these earnings on your Self Assessment, so they’ll be subject to further taxes after you’ve deducted your expenses. HMRC requires you to:
- own the property
- make sure any amount over £312 per annum is classified as rental expenses
- create a rental agreement between yourself and your limited company
- make sure that the rental agreement states that the rent is specifically for use of the office at certain times of the day, and nowhere else within your house is used
- make sure the rent you set is reasonable.
HMRC rules are complex in this area and they expect any calculation to be ‘fair and reasonable’. You should speak to a Crunch accountant before preparing a rental agreement between you and your company.
Work uniform or protective clothing
As we mentioned at the beginning of the article, you can’t claim for a nice suit or dress as it may have a private use. However, if you need a uniform for your business, perhaps a t-shirt or hoodie with your business name and logo on, or if you need special protective clothing such as steel toe-cap boots, you’re able to claim for the costs.
If you’re an actor or entertainer and need a costume, you can also claim for that, but not for any everyday clothing.
With Crunch we strive to make accounting easy to manage for those running their own business. This is why we have created on the go apps to assist you with recording your expenses, plus tonnes of other helpful features to make your life that bit easier.