Understanding allowable expenses helps limited companies manage their tax liabilities.

Every year, accountants hear the same two confessions from new clients. The first: “I didn’t know I could claim that.” The second, usually delivered a little more quietly: “I’ve been claiming that for years. Is that a problem?”

Both cost money. Miss a legitimate expense and you pay more Corporation Tax than you need to. Claim one you shouldn’t and you risk an HMRC enquiry, penalties and interest. This guide walks through what a UK limited company can claim, where the traps are, and a few rules that tend to surprise people.

The one test that matters

Almost everything comes back to a single phrase: “wholly and exclusively” for the purposes of the trade. If a cost was incurred purely to run the business, it is generally deductible. If there is a private element, the expense is either partly disallowed or, in some cases, not allowed at all.

A useful shortcut: ask yourself, “Would the company have spent this money if I weren’t also getting a personal benefit from it?” If the honest answer is yes, you are probably on solid ground.

The everyday claims

These are the bread and butter of any set of accounts, and rarely controversial:

• Staff costs. Salaries, employer’s National Insurance, and employer pension contributions are all deductible, including for directors who are properly paid through payroll.
• Premises costs. Rent, business rates, utilities and insurance on business premises.
• Professional fees. Accountancy, legal fees for business matters, and bookkeeping and payroll services.
• Websites, advertising, branding, printed material and social media costs.
• Software and subscriptions. Accounting software, cloud services, and trade or professional memberships relevant to the business.
• Professional indemnity, public liability, cyber and employer’s liability cover.
• Bank charges and business loan interest. Provided the borrowing was for business purposes.
• Courses that maintain or update skills used in the existing business (training for an entirely new career is a different matter).

Travel: the area where records win or lose the argument

Accurate mileage records are essential when claiming business travel expenses.

Business travel is one of the most commonly claimed and most commonly challenged categories.

Mileage. When an employee or director uses their own car or van for business journeys, the company can pay approved mileage rates tax-free. Good news for 2026/27: the rate for cars and vans rose from 45p to 55p per mile for the first 10,000 business miles (25p thereafter), backdated to 6 April 2026. That was the first increase in well over a decade. If your payroll or expenses system is still paying 45p, it is worth checking, as reimbursements made at the old rate can be topped up without tax or National Insurance.

What doesn’t count. Ordinary commuting between home and a permanent workplace is not business travel. Temporary workplaces and client visits generally are.

Other travel costs. Train and flight tickets, taxis, parking, tolls and hotel accommodation for genuine business trips are allowable. Parking fines are not.

Subsistence. Reasonable meals and drinks while travelling away from your normal place of work on business can be reimbursed. Keep receipts and be sensible.

Equipment and big purchases: where the real tax savings live

Qualifying business equipment can benefit from valuable capital allowances.

If the company buys a laptop, machinery, tools or office furniture, the cost isn’t simply expensed in the usual way. It is dealt with through capital allowances, and the rules for companies are generous:

• The Annual Investment Allowance (AIA) gives 100% relief on up to £1 million of qualifying plant and machinery each year.
• Full expensing gives companies a 100% first-year deduction on qualifying new main-rate plant and machinery, with no cap.

For most small companies, that means a new laptop, a van or a piece of kit can be written off against profits in the year of purchase.

Cars are the notable exception. They sit under their own rules, with relief dependent on CO₂ emissions and whether the car is electric, so check before you buy rather than after.

Working from home

Directors may be able to claim certain costs associated with working from home.

Directors working from home can claim a flat rate of £6 a week (£26 a month) from the company without receipts. Where actual costs are higher and can be evidenced, a proportion of heating, electricity and broadband can be claimed instead. A single broadband line or mobile contract in the company’s name is typically treated as a business cost even where there is some personal use, though HMRC will want to see that it is genuinely needed for the business.

The grey areas that catch people out

Client entertainment: not deductible. Taking a client to lunch feels like a quintessential business expense. For Corporation Tax, it is not allowable. (VAT recovery is blocked too.) Many business owners are surprised by this, so it is one of the most common disallowances we see.

Staff entertainment: allowable, within limits. Contrast that with the Christmas party. Annual staff events are allowable and free of a taxable benefit up to £150 per head per year, provided the event is open to all employees. That £150 is measured across all events in the year and includes VAT and any transport or accommodation. Go over it and the whole amount becomes taxable, not just the excess.

Gifts. A gift to a client can be allowable if it carries a conspicuous advertisement for your business and costs no more than £50 per person per year. Food, drink, tobacco and vouchers are excluded.

Trivial benefits. Small perks such as a birthday present, a bunch of flowers or a coffee can be given to employees tax-free if they cost £50 or less, are not cash or a reward for work, and are not contractual. Directors of close companies have an annual cap of £300.

Fines and penalties. Parking fines, speeding fines and HMRC late-filing penalties are not deductible, however frustrating that is.

Personal spending dressed up as business. Groceries, personal clothing, gym memberships and family holidays do not become allowable because they went through the company bank account. These will usually end up in the director’s loan account and may create a tax charge.

Costs incurred before you start trading

Here is one many founders miss entirely. Expenses incurred in the seven years before a company starts trading can generally be claimed as if incurred on the first day of trading, provided they would have been deductible had the business been running at the time. Early website costs, research and professional fees can all qualify.

Records: the unglamorous secret

Good record keeping helps support legitimate expense claims and HMRC compliance.

A perfect expense claim with no evidence is, in HMRC’s eyes, a weak one. Keep invoices and receipts for at least six years, log your mileage as you go (reconstructing a year of journeys from memory is a classic red flag), and make a short note of the business purpose for anything unusual. Digital bookkeeping tools that capture receipts by phone make this far easier than it used to be.

Why it matters

Corporation Tax is charged at 19% on profits up to £50,000 and 25% on profits above £250,000, with a sliding scale in between. At those rates, every £1,000 of genuine expense can reduce a tax bill by roughly £190 to £250. Over a year, those small amounts add up to something substantial, and the reverse is also true: the wrong claims, found years later, tend to arrive with interest and penalties attached.

Not sure whether you can claim it?

That is exactly what we are here for. If you are unsure about a particular cost, a large purchase, or the way you have been handling expenses so far, talk to us before you spend or file, not after.

If you’d like professional guidance tailored to your circumstances, please contact: kevin@kwaccounting.com

This article is for general information only and does not constitute tax advice. Rates and allowances are correct at the time of writing for the 2026/27 tax year but are subject to change, and your own circumstances will affect how the rules apply. Please speak to us before acting.