When running a limited company, understanding allowable expenses is key to ensuring you’re not paying more tax than necessary. Claiming legitimate business expenses reduces your company’s taxable profit, and that means a lower Corporation Tax bill.
In this blog, we’ll explain what allowable expenses are, provide examples, and highlight some common mistakes to avoid.
What Are Allowable Expenses?
Allowable expenses are the costs your business incurs “wholly and exclusively” for the purpose of trade. These are deducted from your business income before Corporation Tax is calculated.
For example:
If your company earns £100,000 and incurs £20,000 in allowable expenses, you’ll only pay Corporation Tax on the remaining £80,000.
Common Allowable Expenses for Limited Companies
1. Office and Administration Costs
- Rent for business premises
- Utilities (electricity, water, heating)
- Office supplies (paper, printer ink, postage)
- Software and cloud services (e.g. Xero, Microsoft 365)
- Internet and business telephone lines
2. Staff Costs
- Employee salaries and wages
- Employer’s National Insurance Contributions (NICs)
- Staff training (if relevant to your business)
- Employer pension contributions
Tip: Annual staff events (like a Christmas party or summer BBQ) can be claimed up to £150 per head per year, but it must be open to all staff.
3. Travel and Subsistence
- Mileage (45p per mile for first 10,000 miles, 25p thereafter)
- Train, bus, and taxi fares for business journeys
- Hotel stays during work trips
- Meals when travelling for work
NB Travel between your home and regular workplace is not allowable.
4. Professional Fees
- Accountancy and bookkeeping services
- Legal advice related to the business
- Consultancy or specialist advice
5. Marketing and Advertising
- Website design and hosting
- Online ads (Google Ads, Facebook Ads)
- Business cards and printed materials
- Sponsorship of local events (if it promotes your business)
6. Insurance
- Public liability insurance
- Employers’ liability insurance
- Professional indemnity cover
7. Banking and Finance Costs
- Business bank charges
- Loan interest (if the loan is used for business purposes)
- Lease payments for business equipment
8. Use of Home as Office
If you run your business from home, you can claim a proportion of:
- Heating
- Electricity
- Council tax
- Broadband and phone
Alternatively, HMRC allows a flat-rate claim of £6 per week without receipts… this is what we recommend to our clients!
9. Training and Subscriptions
- Training courses to maintain or improve your existing skills
- Subscriptions to professional bodies (must be on HMRC’s approved list)
What You Can’t Claim
Not all costs are allowable. HMRC has strict rules, and getting it wrong can lead to penalties. Here are some disallowed expenses:
- Client entertainment (even lunch or drinks, it’s not tax-deductible)
- Fines and penalties (like speeding or parking tickets)
- Clothing, unless it’s a uniform or protective gear
- Commuting costs to a regular place of work
- Personal expenses (e.g. holidays, personal meals)
Keep Good Records
To support your expense claims, make sure you:
- Keep all receipts and invoices
- Maintain clear records in your accounting software
- Separate business and personal spending
Cloud-based tools like Xero or QuickBooks make it easier to track and categorise your expenses.
Final Thoughts
Understanding what you can and can’t claim as a limited company can lead to significant tax savings… or penalties if you get it wrong! If you’re unsure whether a specific cost is allowable, it’s always best to check with your accountant… or reach out to our team for tailored advice.
