Limited company expenses are allowable expenses that your business can claim, helping you reduce your corporation tax bill.
You subtract these limited company expenses from revenue to calculate your company’s profit – and therefore the amount of corporation tax you pay.
Limited company expenses : the rules
If you set up a limited company, tax deductible expenses have to be “wholly an 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:
Generally, any money you spend on entertaining clients or gifts is not allowable, Even if it is a genuine business expense.
It's important to have a record of all your limited company expenses, so make sure you keep all your receipts, invoices, and any other important paperwork.
Keep in mind that you need to keep records for at least six years after you filed your tax return, as HMRC could investigate at any point within this time frame.
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:
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 open to all staff.
It's a bit different if you buy an asset for your business. If you buy something that you're going to keep on using your business, like a piece of machinery or a work van, you can claim capital allowance 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 been temporarily increased to £1,000,000, and there is currently a policy paper out looking to extend this from 1 January 2022 – 31 March 2023.
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.
We can assist you a review of your employee expenses and benefits and 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 will be paid back.