Whether you're just starting out, or you've had some experience running your own limited company, we've created a handy list that'll make sure all your business expenses are legitimate.
HMRC has some general guidance on what expenses you can claim with a limited company. Basically it's anything that is 'solely and exclusively' for the purpose of your trade. What exactly does that mean?
For starters, anything your company purchases should further allow it to create revenue and ultimately more profit. Everything that is absolutely essential to run the business also falls under this description.
As a company director there are additional allowances you can claim such as the Use of Home Allowance. It's a £4 weekly allowance that doesn't require any receipts or evidence. Your company can just reimburse you for this cost as an allowable expense with full corporation tax relief. HMRC created this allowance for any time spent working from home on your business which inevitably happens.
If you want to claim more, then you'll need to create a fair calculation to apportion your electricity, water and gas bills for business use. Do not include things like Council Tax as these are fixed costs that would be incurred with or without your limited company.
Allowable Company Expenses
Now that we have the director-specific expense out of the way, we can delve into the expenses your company can claim for tax purposes like VAT and Corporation Tax.
- Staff Entertaining - In order for your company to receive full corporation tax relief on staff entertaining costs (events, group exercises etc), all staff members must be invited to attend. There's also a Christmas Party Allowance of £150 per head that your company can claim. Please keep in mind that if your company spends more than the £150 allowance, the entire expense will no longer be allowable for corporation tax relief.
- Travel & Subsistence - Travel between your company's registered office address and client sites, or travel to networking events are perfectly allowable as a business expense. You can easily claim the Mileage Allowance from your company which is £0.45 per mile for the first 10,000 miles and £0.25 thereafter. Remember to keep records of your business travel with a mileage log and any relevant fuel receipts. There is however a 24 month rule if you often travel to the same location (here's our post for more info). Subsistence is also claimable as long as it's a pre-prepared meal such as a sandwich or cafe/restaurant food while you're on the road. In other words, you can claim food while you're travelling for business if you didn't have the chance to bring your own. Again the same 24 month limit applies.
- Equipment - Generally speaking, any equipment your company needs in order to provide its service will be allowable. This can be certain hardware, tools, accessories for your computer, cables etc. Often times contractors or freelancers will source materials or equipment on behalf of clients. These would be listed as a cost of sale in your books and are completely fine to put through the company.
- Staff Training - Your company is able to pay for any necessary staff training to further improve its own services. However, this is limited to the services your company is already carrying out. Unfortunately what your company can't pay for, is training that will add a new trade to the business. The best example would be a lumber company suddenly paying to train their staff members in software development. The two are not closely related and so HMRC would not look favourably on this scenario.
- Uniforms & Protective Clothing - Essential protective gear related to your company's trade is absolutely fine as a business expense. If you kit out your staff with branded uniforms or t-shirts, these are also allowable since it's a form of advertising for your company. Even if you can use the shirts for personal wear, your company will still be advertised; removing the 'dual purpose' element of the clothing.
- Internet & Phone - Your company is able to provide one mobile phone per employee. Generally this will need to be a business contract because employees could easily use a personal phone contract for, well, personal time. HMRC does not like this because of the 'dual purpose' element. However, as a company director you can treat your personal phone contract as your main business phone. The justification behind this is that the contract itself is a better deal for the company (being cheaper) and also provides more minutes, texts and data. So if you're only using your phone for business, you could put the personal contract through the company. It's even better if you can get a second phone contract for your personal needs. You can also claim your internet cost if it's being used for business.
- Software & Web Hosting - This is a very self-explanatory expense. Any software your company requires to carry out its trade or even advertise its services can be claimed for full corporation tax relief. The same goes for web hosting. Having a website is a form of advertising for the company.
- Advertising & PR - Another expense that is easy to justify. This falls under the general category of an expense which will further the company's turnover and profit. There's no personal element to these kinds of expenses either so it's absolutely fine to claim.
- Medical Costs - These are only allowable when they can be directly correlated to your company's service. For example if you're a software developer and eventually you are perscribed with VDU glasses, this would be an allowable business expense (both the appointment and the glasses). Simply put, the company's services were the cause of the problem. Be careful with medical costs however as some issues can be attributed to pre-existing conditions which means your company's isn't responsible.
- Subcontractors, Employees & Service Costs - Any kind of labour cost related to your company's services is again perfectly acceptable as a business expense.
- Company Pension Contributions - Your company can contribute into a personal pension scheme on your or your employees' behalf. There's a limit of £40,000 per tax year, but it's fully allowable for corporation tax relief. Please note that the limit can change if your personal earnings are over £100,000 per tax year. We recommend speaking with a financial advisor before making any pension contributions through the company.
- Fixed Assets - These are equipment, plant and machinery purchases that have a 'life' of 2 years or more. So a laptop worth £2,000 could fall into this category and then depreciated over its expected life. Often your company can claim the annual investment allowance which lets your company receive full corporation tax relief up-front without waiting for depreciation. Plant and machinery can be things like a van, forklift, or other equipment your company needs to provide its services.
Disallowable Company Expenses
There are a few things that may not be so obvious as a disallowable expense for your limited company. Mostly these include items that have a 'dual purpose' or a personal element to them so HMRC cannot clearly distinguish that it's wholly and exclusively for your business.
- Groceries - Although HMRC allow you to claim subsistence costs from the company, they will not be happy about you claiming groceries from it. This is because all humans (running a business or not) will need to buy groceries as a basic need. It cannot be directly attributed to running your business. Purchasing groceries with the company will create a benefit in kind so it's best to avoid doing so.
- Gifts containing Food or Alcohol - This is very self-explanatory. HMRC does not allow your company to claim tax relief on any gifts containing food or alcohol. What your company can do however is reimburse the cost to you since it is still a business expense, providing you paid for it out-of-pocket.
- Personal Costs - Making any personal purchases through your company will create a benefit in kind. For example a gym membership is a personal cost and you will need to pay extra personal tax on the benefit received.
- Clothing - Clothing has a very strong 'dual purpose' element to it unless of course it's branded with your company's logo. Normal business wear can just as easily be used for social gatherings as it can be used for business meetings, so HMRC does not allow it. The same goes for dry cleaning. These will create a benefit in kind.
- Client/Business Entertaining - Unfortunately client or business entertaining costs cannot receive corporation tax relief. You can only reclaim the cost from your company if it was paid for personally, rather than with the business card.
- Dual Purpose items - Again these will simply create a benefit in kind as it's very difficult to prove these as being 'wholly and exclusively' for the purpose of your business. This is why more often than not, company cars will immediately be treated as a benefit in kind by HMRC. If they are not actually used for any personal travel, you'll need to work hard to prove this to HMRC.
That basically wraps up our detailed list of what expenses you can claim with a Limited Company. If you're not sure of an expense, always get in touch with your accountant or even call the HMRC business helpline for more guidance. Doing so will help you stay on the right side of the law and prevent any inconvenient tax issues later on down the line.
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