Corporate Expenses Guide – What business costs are tax allowable for Limited Companies
In general, tax-deductible expenses in a Limited Company must be wholly and exclusively for the use of the business.
If an expense has a dual purpose for both personal and business, you can only claim for the business element.
A summary of the rules for typical costs incurred by a company include:
- Staff expenses – As well as the salary and National Insurance contributions you pay to your employees the following costs are also allowable:
- Annual staff party – You can claim for the costs of hosting an annual staff party as long as the following conditions apply:
- The cost does not exceed £150 per head
- The main purpose of the event is to entertain your staff i.e., the majority of the guests should be employees
- The event must be open to all staff.
- It does not have to be a single function, it can be several functions over the year, but the total cost of all the events must not exceed £150 per head.
- Gifts and Trivial Benefits – You can buy small gifts for your employees, which will be fully allowable with no further tax and NIC implications provided the following conditions are met:
- It costs £50 or less to provide
- It isn’t cash or a cash voucher
- It is not a reward for their performance
- It is not included in the terms of their contract
- Eye tests and glasses – You can claim the cost of an eye test, only if you are required to use visual display equipment as part of your everyday job. You can also claim the cost of glasses only if the prescription is for screen-based work, not for a general prescription.
- Travel costs – You can claim for travel-related expenses for any business trips that you make. You cannot claim for the costs of your general commute (i.e. travel from home to your permanent place of work). Costs you can claim are as follows:
- Mileage – You can claim mileage for any business trips you make in your personal vehicle. HMRC approved mileage rates are as follows:
- Car or van – 45p per mile for first 10,000 and 25p over 10,000 miles
- Motorcycle – 24p per mile
- Bicycle – 20p per mile
- Transport fares – train tickets, flights, taxi fares etc.
- Parking charges and toll fees
- Accommodation for overnight trips – You can claim for the costs of accommodation for overnight business as long as the costs are reasonable and not excessive.
- Meals – You can claim for the costs of meals while working away in one of two ways:
- Actual costs incurred – you can claim for the costs of any food or drink purchased whilst on a business trip. You must keep evidence of the costs incurred.
- Using HMRC benchmark scale rates. These are approved rates set by HMRC that you can pay to cover the cost of subsistence while working away. You do not need to keep evidence of every cost incurred but there must be some evidence of checking that the employee did incur a cost. The rates are as follows:
- Minimum journey time – 5 hours – £5
- Minimum journey time – 10 hours – £10
- Minimum journey time – 15 hours (and ongoing at 8 pm) – £25
- General office costs – Postage, stationery, printing costs and other consumable office supplies are all allowable costs
- Use of home as office – You can claim for costs for using your home for business in one of two ways:
- Claiming a flat rate expense using HMRC approved rate of £6 per week
- Claiming a portion of your home expenses such as utilities. The calculation will be based on the number of rooms used for business and how long you use the rooms for
- Equipment – Purchases of equipment such as computers, printers and other office furniture like desks and chairs are subject to tax relief by way of claiming capital allowances.
- Protective clothing:
- The costs of protective equipment required for the business such as hi-visibility jackets, safety boots and safety helmets are an allowable expense.
- Uniform that is required to be worn by you and your employees is also an allowable expense
- The cost of normal clothing purchased for business, such as a new suit for a meeting, is not an allowable expense.
- Mobile phone:
- You can claim the full costs of a mobile phone bill as long as the contract is in the company name.
- If you pay for a mobile phone bill in your personal name, or your employees name, then only the business-related calls are allowable.
- If you pay for the full cost of a personal mobile phone bill, then this will be taxed as a benefit in kind.
- Landline and Broadband:
- If the landline and/or broadband is used solely for business, then the costs are fully allowable
- If landline and/or broadband is used for both business and personal, then you can only claim for the business portion. This will need to be broken down separately, for example using an itemised bill.
- Insurance – You can claim the cost of insurance as long as it is taken strictly for business purposes. Common types of business insurance include professional indemnity, public liability and employers’ liability insurance
- Relevant life cover – Relevant life cover is an allowable business expense. It must be a relevant life cover policy; standard life insurance policies are not a tax allowable expense.
- Professional fees – Payments for professional services such as accountants or solicitors’ fees are an allowable expense as long as the service is carried out solely for business purposes.
- Financial costs – bank & credit card charges and interest on loans and hire purchases are an allowable expense
- Marketing and Advertising – These costs are an allowable expense as long as they are incurred solely for business purposes
- Training – Training costs are an allowable expense as long as the content relates to your trading activity. Training courses to learn a new skill are not an allowable expense unless you can show that it will improve your business.
- Professional subscriptions – Subscription costs are an allowable expense as long as they are directly related to your trading activity.
If you are unsure if a cost is tax allowable or would like further advice on any of the above, then please get in touch with us.
