From stationery to printing to travel costs, every business has overheads to juggle and claiming business expenses is a simple way of keeping your business tax efficient – it reduces your profit, which in turn, lowers your Corporation Tax liability and payments. By claiming every allowable expense, you are making sure you do not pay a penny more in tax than you need to.
The general rule is that expenses must be “wholly, exclusively and necessary” for business purposes and HMRC’s rules can be complex and is reasonable in the claim being made.
When it comes to claiming business expenses for your limited company, there are several rules you need to follow:
- Business 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.
- You can be offset against your company’s corporation tax liability – although there are some exceptions, including business entertainment (see below)
- Maintain an accurate record of all running costs (from initial start-up), including VAT receipts, so that you justify your actions should you be subject to an HMRC tax enquiry.
- You can only claim for the expenses that you incur wholly and exclusively during the everyday running of your business.
- 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 some extra leisure time, you can only claim for days that were business-related.
A-Z of expenses your Limited Company can claim
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.
Advertising, Marketing and PR expenses
You work hard to shout about your company’s products and services via your advertising, marketing and PR activity. And 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 one of your limited company expenses.
The bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Business insurance expenses
You can claim the cost of your business insurance policies as limited company expenses, as long as they’re used strictly for business purposes. Business insurances including public liability insurance, employers liability, professional indemnity insurance and contents insurance are all allowable expenses.
Childcare costs aren’t directly linked to the management of your business and as such, can’t be claimed as a business expense. However, a limited company can claim tax relief on childcare costs via childcare vouchers up to a total value of £243 each month.
From computers and software to scanners and printers, the equipment that’s necessary to help you carry out your role as a limited company director can be claimed as company expenses. Office furniture, such as chair and desks, can also be claimed for as long as it’s used mainly for business purposes.
Generally, spending money on business entertainment isn’t an allowable expense against profits. However, if you have to spend your own money on business entertainment as part of your duties as a limited company director, you may be able to claim it as a business expense. Keep in mind that in this latter case, these business entertainment costs would be disallowed in the company profits, giving you the same result as not claiming in the first place.
Gifts, entertainment and trivial benefits
You don’t need to pay tax and National Insurance or let HMRC know about a gift or benefit for your employee (otherwise known as a trivial benefit) if the following rules apply:
- It’s not set out in the terms of their contract
- It’s not a reward for their performance or work
- It isn’t cash or a cash voucher
- It cost you £50 or less to provide
- If you offer employees gifts or benefits that don’t match all of the criteria above, then you’ll need to pay tax on them.
Health check and eye test expenses
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 limited company expenses. The cost of prescription glasses or contact lenses can also be claimed as business expenses but only if they’re used strictly for screen-based work as part of their employment.
Once you’ve established an agreement with a pension provider, you can pay into your pension pot and get 100% tax relief as a limited company expense. Be aware that there’s a £40,000 limit on how much money you can add in tax-free to a pension scheme via your business or personally.
Communication utilities, including phone and broadband access, can be claimed as a limited company expense. 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 limited company expenses for the business calls you’ve made from your home phone line.
Professional subscription expenses
Occupation-specific magazine subscriptions, journals and books can be claimed as a limited company expense. 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 a business expense as it’s a way for your business to keep up to speed on industry trends and your competition.
Professional development expenses
Personal development and training courses can be claimed as limited company expenses, just make sure you check it’s 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.
Staff Christmas party expenses
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 open to all staff members and costs less than £150 per person.
Only if the travel is necessary for work purposes and you need to be present at a business meeting. This does not, however, include your daily commute from A-B. You can’t claim if you turn a personal trip into a business journey, or if on a business trip that is then extended for an extended leisurely stay, you can only claim for those that were business-related.
If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:
- Car and vans – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
- Motorcyclists – 24p per mile
- Bicycle – 20p per mile
As well as the mileage rates listed above you can also claim the following as business expenses:
- Parking costs
- Road toll fees
- Congestion charges
- Hotel rooms (within reason)
- Food and drink on overnight trips
- Public transport, including train, bus, air and taxi fares
- Vehicle Insurance
- Vehicle repairs and servicing
Start-up costs can be claimed as limited company expenses for up to seven years before a company starts trading. Common pre-formation business expenses include computer equipment and software, internet and domain name fees, travel costs, as well as professional services such as accounting and legal help.
As a director of a limited company, if you choose to pay yourself a salary as an employee of your business, this, and the corresponding National Insurance Contributions (NIC), can be claimed as allowable expenses. Bear in mind that once you reach the National Insurance threshold, you’ll have to start pay NICs.
Don’t pay more tax than you need to
Nobody wants to pay more tax than they have to, which is why it’s important to keep your business as tax efficient as possible which could help save you quite a bit of money in the long term.
Our top tip to remember is that when it comes to working out what allowable expenses you can claim for your limited company ask yourself, “Is the claim incurred wholly, exclusively and necessary in the running of my business?”
If you are finding the process of working out what the allowable expenses your limited company can or cannot claim a bit bewildering, you can always get in touch with us to talk through any of the above or chat through any tax or accountancy question you may have on 020 8577 0200.