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What expenses can I claim as a limited company?

September 23, 2022Nobody wants to pay more tax than they have to — but if you’re a limited company director with a bunch of unclaimed expenses, you might be missing out of some nifty tax breaks.To make sure you’re setting your company up for success, you’ll need to know exactly what expenses are tax deductible. From eye tests to Christmas parties, a lot of the costs you incur in setting up and running your business can actually help lower your tax bill at the end of the year.This article will cover some common allowable expenses and how to claim them. So, without further ado, let’s dive into all things business expenses.

What are allowable expenses?

Allowable expenses are the business costs for your limited company that you can subtract from your company profits to find out what your taxable profit is.To claim a business expense as an allowable expense, the expense must be incurred wholly and exclusively for your business. This isn’t to say that you can’t claim tax relief on items used for both business and personal use. While you can’t claim back the entire expense, you can claim back the percentage that is used for business use. For example:You spend £100 on your phone bill this month, but 25% of the calls you made were personal phone calls. This means that you can only claim £75 as a business expense, reflecting the 75% of time on the phone spent making business calls.

What expenses can I claim as a limited company?

As a rule of thumb, you cam claim back the following as allowable business expenses:

Company formation costsRunning costs, such as rent, utility bills and business ratesSalaries and pension contributionsOffice costs, such as stationery and office equipmentTravel and accommodation for business trips (but not commuting costs)Legal and financial costsAdvertising, marketing and PR

Company formation costs

For up to 7 years before your company starts trading, you can claim startup costs for your limited company as expenses.Examples of startup expenses include laptops, software, internet, securing domain and company names, travel costs, accountancy fees and legal help.

Salaries

Pensions

Setting money aside from the future has its immediate benefits. Whether you’re paying into a pension scheme via your business or personally, you can get up to 100% tax relief on up to £40,000 in the 2022/23 tax year.

Office equipment and utilities

Whether it’s some new stationery or a utility bill, even the smallest expenses add up, so be sure to keep track of any of the following purchases:

Tax relief on advertising, marketing and PR

Regardless if it’s a one-off cost or an ongoing fee, your advertising, marketing and PR activities can be claimed as a limited company expense.Time to shout about your business, without worrying about paying tax on the expenses.

Working from home: allowable expenses

If you run your business from a home office, you can claim up to £6 a week, or up to £312 a year. You don’t need to keep any detailed records or have to pay any tax on this, either.If you pay a fixed fee for your internet connection, you should claim the business percentage of your usage of broadband. To do this, work out how much you use for business purposes.

Can I claim business travel as an expense?

Yes. HM Revenue and Customs (HMRC) have approved rates for business mileage if you’re travelling in your own car. However, you must keep a detailed mileage log. Without the breakdown of each journey and the miles you’ve covered, HMRC could refuse your claim.If travelling to a temporary place of work using your personal car or van, the following rates can be claimed as limited company expenses:You can also claim the following as travel-related business expenses:

Parking costsRoad toll feesCongestion chargesHotel rooms (within reason — nothing too fancy)Food and drink on overnight tripsTravel expenses on public transportVehicle insurance, repairs and servicing

These allowances don’t extend towards your daily commute but you can claim for other staff travel costs, such as visiting a client or going to a networking conference.If you’re staying in a hotel, you’ll be able to claim expenses for your accommodation costs if you are:

Staying away from home for business purposesAttending a business appointmentAt a temporary workplace, meaning somewhere you expect to be working for less than 40% of your time (for the next 24 months)

Plus, if you pay for food and drink yourself when you’re away, you can also claim that cost back from the company. The company can then include this cost as a business expense.There are some rules, as follows:

You can claim lunch costs if you exceed 5 working hoursYou can claim dinner costs if you’re working up to 10 hours

Just remember to hold onto your receipts!

Is work clothing tax deductible?

The following types of clothing can be claimed back as tax relief:

Uniforms, such as those worn by dentists or doctorsPersonal protective equipment (PPE), such as protective headgear and steel-toed boots on construction sitesCostumes that cannot be worn in any other capacity outside of the workplace

While it might be tempting to buy a polo shirt with your company logo on it, you won’t unfortunately be able to claim this back as a clothing expense.

Training expenses

Paying for resources like training courses and industry magazine subscriptions count as allowable expenses. That’s so long as they training resources are directly related to your line of work, with what you learn beneficial to the progression of the business.

Tax deductible medical treatment

In some cases, a company can provide medical treatment as an allowable expense. For example, you might need to pay for an eye test for an employee who uses a computer regularly.

Do Christmas parties count as business expenses?

Luckily, HMRC isn’t a company full of Scrooges. When you’re entertaining your employees, you might be able to claim tax relief, providing these three criteria are met:

1. You’re hosting an annual event — in this example, a Christmas party
2. Event is open to all team members
3. It costs less than £150 per guest

Unfortunately, you cannot claim back expenses made towards entertaining clients.Moreover, you don’t need to let HMRC know about a gift or benefit for your employee if the following rules apply:

It’s not set out in the terms of their contractIt’s not a reward for their performance or workIt isn’t cash or a cash voucherIt cost you £50 or less to provide

If you offer employees gifts or benefits that don’t match all of the above, though, then you’ll need to pay tax on them.

Business insurance

You can claim the cost of your business insurance policies as limited company expenses, as long as they’re used strictly for business purposes. This might include:

Public liability insuranceEmployer’s liability insuranceProfessional indemnity insuranceContents insurance

Are bank fees a business expense?

While you can’t claim for repayments of personal loans, overdrafts or finance arrangements, you can claim bank fees as business expenses. This includes credit card interest, loan interest and:

Bank, overdraft and credit card chargesInterest on bank and business loansHire purchase interestLeasing paymentsAlternative finance payments, such as Islamic finance

How do I claim limited company expenses?

You have two options: pay your company’s expenses directly from the company business bank account or as a reimbursed expense (when paid by you).If you have employees that 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.As a small business owner, it’s good practice to have a company expense form and policies, outlining how much employees are allowed to spend under certain situations. You can collect these claims at the end of the month.Here are 5 golden rules to remember when making a claim on your expenses:

1. Only claim for the expenses you incur wholly and exclusively during the everyday running of your business.
2. If you use an item for business and personal use, you can only claim back the percentage used for business purposes.
3. Business expenses can be paid through your company’s bank account, or they can be reimbursed by the company.
4. Most expenses can be offset against your company’s Corporation Tax liability.
5. To successfully make a claim, you’ll need to keep accurate records of the expenses you make.

You can also claim expenses from previous tax years. That being said, you must claim within 4 years of the end of the tax year that you spent the money.

A guide to bookkeeping

To accurately account for your expenses, you’ll need to keep records of receipts and invoices, just in case of an audit from HMRC for at least 6 years.