Limited Companies Expenses Rule
The golden rule for all expense claims is that you can only reclaim for expenses which have been incurred wholly, exclusively and necessarily in the course of running your company.
Additionally, you cannot claim for expenses which have a dual purpose (i.e. for both personal and business use).
You should always ensure that you keep all of your receipts and invoices in order to prove that any claims you have made have been legitimate.
Keep in mind is that HMRC can come back and request proof of expenses up to six years after they’re claimed.
So, if you’re thinking about chucking out your papers once HMRC has accepted your accounts, think again. If you’re unable to give proof when asked, later on, you could be asked to pay the money back.
Typical limited company expenses
In principle, your company can deduct from turnover any type of expenses which aren’t specifically disallowed by HMRC, or capital expenditures.
Here are some of the main business expenses you can set off against Corporation Tax (unless otherwise stated):
- Executive pension contributions (via an approved scheme).
- Employers’ national insurance contributions (NICs) payable on salaries paid to company employees.
- The cost of subsistence while away from your workplace (no claims after 24 months for subsistence the same ‘temporary workplace’).
- Accommodation costs when away from normal place of business (although must not exceed 24 months at a ‘temporary workplace’).
- Travel and parking costs, mileage allowance if using an own vehicle of 45p/mile for the first 10,000 miles, and 25p/mile thereafter. 20p/mile rate for bicycles.
- Training course fees as long as the skills are relevant to the business.
- Stationery, postage, and printing costs.
- Business insurance, such a professional indemnity insurance.
- Company formation and ongoing costs (e.g. Annual Return fee), although the company formation fee is a ‘capital cost’, and cannot be set off against Corporation Tax.
- Telephone and broadband packages (if the contract is in the company name).
- Mobile and Smartphones (if the contract is in the company name).
- The cost of business calls can be reclaimed on a residential phone bill.
- Home office costs (a flat £4/week without receipts is allowed by HMRC, or work out a proportion of the household bills).
- Computer equipment and software.
- Costs of advertising and marketing your business.
- Business gifts up to £50 per individual are allowable before more complex rules apply.
- Incidental overnight expenses of £5/night (£10/night if overseas) can be claimed as a flat rate if you are working away from home.
- Authorized bank charges, e.g. standing charges each quarter.
- Christmas party exemption for directors and employees of £150 per person per year (you can include your partner or spouse).
- Professional fees, such as accountant or solicitor.
- A limited number of professional subscriptions, if allowed by HMRC.
- Capital allowances (depreciation of assets).
- Business magazines and books.
- An eye test for employees who use computer equipment.
- An annual private health check for employees.
- Hire purchase agreements (in the company name).