What limited company expenses can I claim?

Limited company expenses: the rules

If you’ve set up a limited company, tax-deductible expenses have to be ‘wholly and exclusively’ used for your company. 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.

But as long as an expense is allowable, you can deduct it from your revenue to calculate your taxable profit.

A lot of your costs are allowable expenses for your limited company, including:

• office equipment
• salaries
• business insurance

Generally, any money you spend on entertaining clients or gifts is not allowable, even if it’s a genuine business expense.

It’s important to have a record of all of your limited company expenses, so make sure you keep all of your receipts, invoices, and any other important paperwork.

Keep in mind that you need to keep records for at least six years after you’ve filed your tax return, as HMRC could investigate at any point within this timeframe.

Read more: How long to keep tax records

Looking for a more general guide to small business tax? Head over to our tax hub page for more information.

List of allowable expenses for a limited company

Many of the costs involved in setting up your limited company and keeping it running are allowable business expenses, for example:

• the costs for forming your limited company
• premises costs, like rent and utility bills
• salaries and other staff costs
• the cost of stock or raw materials
• office costs, like stationery and phone bills
• travel and accommodation costs for business trips (but not commuting costs)
• legal and financial costs, like accountancy fees and your professional indemnity insurance
• advertising and marketing costs

Business entertainment costs aren’t usually tax deductible. But you can host a social event for your staff and claim it as a business expense, as long as the cost doesn’t exceed £150 per person, and it’s an annual event (such as a Christmas party) that’s open to all staff.

Capital allowances

It’s a bit different if you buy an asset for your business. If you buy something that you’re going to keep and use in your business, like a piece of machinery or a work van, you can claim capital allowances on your tax return.

This means that you can deduct the full value of the item from your revenue before tax, using your annual investment allowance (AIA). The AIA has changed several times over the years, but it’s been set to £1 million since January 2019.

What about limited company expenses and employees?

If you provide benefits or expenses to your employees (including to yourself as a director), such as travel expenses or health insurance, you may have to tell HMRC and pay tax and National Insurance on them.

Check the list of employee expenses and benefits on the government’s website for the rules about each type of cost.

If your employees incur expenses during the course of their work, ask them for receipts so you can reimburse them. Then, include these purchases when calculating your tax deductible expenses.

Remember that normal commuting costs aren’t tax deductible, but you can claim for other staff travel costs, for example when an employee visits a client or goes to a conference.

It’s a good idea to have an employee expenses policy in place so that your employees know which expenses you will reimburse, and they know how and when they’ll be paid back.

Tax can be complicated and face fines if you make a mistake on your tax return. Look at the guidelines on the government’s website and look for professional advice from an accountant if you’re not sure.

Useful guides for small businesses

• Best accounting software for small businesses
• Making Tax Digital – a simple guide
• Changing from sole trader to a limited company
• Is public liability insurance tax deductible?