Allowable expenses for limited companies: what you can and can’t claim

Finance and legal

22 August 2018

Spanning stationery and phone bills to uniforms and staff costs, every business has some overhead costs to manage. As a limited company owner, you can claim tax relief on these costs in the form of business expenses.

Therefore, knowing what you can and can’t claim as business expenses is vital as it could have a direct impact on your tax bill and result in a healthier take-home pay.

Here, we look at the allowable expenses your limited company can claim for tax purposes and what issues you should keep an eye on to ensure you’re being compliant with HMRC’s rules.

Limited company expenses: the fundamental rules

When it comes to claiming expenses for your limited company, there’s a number of rules you need to follow:

  1. You can only claim for the costs that you incur wholly and exclusively during the everyday running of your business.
  2. You can’t claim for expenses that have a dual purpose for business and personal use, e.g. if you decide to extend a business trip abroad for leisure purposes, you can only claim for the business days, not the additional leisure days.
  3. Expenses may be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.
  4. The majority of expenses can be offset against your company’s corporation tax liability – although there are some exceptions, including business entertainment.
  5. Try to maintain an accurate record of pre-formation and running costs, including VAT receipts, so that you can justify your actions if you’re queried in the future.

Expenses your business can claim

Health check and eye tests

If your employees use computer screens as a big part of their job, then they can claim eye tests as well as health checks as allowable expenses. The cost of prescription glasses or contact lenses can also be claimed but only if they’re used strictly for screen-based work as part of their employment.

Advertising, marketing and PR

You work hard to shout about your company’s products and services via your advertising, marketing and PR activity. Regardless if it’s a one-off cost or an ongoing fee, if the investment has been used solely for business purposes, then this can be claimed as an allowable expense.

Accommodation

If you’re on a business trip and have to stay overnight away from your home, you can claim the accommodation costs as an expense. You can also claim the costs incurred by the food and drink as travel and subsistence costs.

Bank charges

The bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.

Childcare

Childcare costs aren’t directly linked to the management of your business and as such, can’t be claimed as an expense. However, a limited company can claim tax relief on childcare costs via childcare vouchers up to a total value of £243 each month.

Working from home

If your home is the heart of your business, you’re able to claim a percentage of your household costs and utility bills. This cost could be claimed as a rate of £4 per week or by working out what rooms you use for your business needs and the amount of time they’re used for work purposes. You’re also able to claim the costs of lighting, heating, postage and printing costs and accountancy and legal services– as long as they’re used solely for business purposes.

Books, journals and magazines

Magazine subscriptions, journals and books can be claimed as expenses if they’re relevant to your business. For example, if you’re the editor of a photography magazine and you have a subscription to a rival title, you should be able to claim the cost of this as an expense as it’s a way for your business to keep up to speed on industry trends and the strategies of your competition.

Phone bills

Communication utilities including phone and broadband access can be claimed. If your mobile phone contract is in your company’s name and used solely for business purposes, you can claim the entire bill as a business expense. If it’s a personal contract, then you’ll need to separate the business and personal use out and claim the business-related expenses only. You can also claim expenses from the business calls you’ve made from your home phone line.

Annual staff party

Whether it’s a Christmas shindig or a staff summer party, the costs of entertaining your employees can be claimed as a business expense as long as it’s an annual event which is open to all staff members and the cost is less than £150 per person.

Professional development

Classes and training used to further the understanding of your area of work is essential to staying ahead of your competition. Some courses aren’t always deemed relevant to the needs of your business, so make always make sure you check if your course is eligible before hitting the books. For example, if you’re an accountant, any training you undergo to become a chartered accountant is an allowable expense.

Travel

You can claim back the costs incurred as travel expenses. Public transport costs can be claimed back through your company. If you travel by car, you can claim mileage expenses of 45p per mile for the first 10,000 miles and then 25p per mile subsequently. You can also claim for the costs associated with parking your car, road toll fees and congestion charges too. Travelling by motorbike? You can claim 24p per mile. If you decide to opt for the more environmentally friendly option of cycling, you’re entitled to claim 20p every mile.

Start-up costs

Expenses can be claimed for up to 7 years before a company starts trading. Common pre-formation expenses include computer equipment and software, internet and domain name fees, travel costs as well as accountancy and professional costs such as legal help.

Business insurance

As with all of the above expenses, you can claim for the cost of business insurance policies that are used strictly for business purposes. Business insurances including public liability insurance, employers liability, professional indemnity insurance and contents insurance are all allowable expenses.

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