What qualifies as a business deduction?
Limited company expenses: the fundamental rules
When it comes to claiming business expenses for your limited company, there are a number of rules you should follow:
- You can only claim for the expenses 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. For example, if you decide to extend a business trip abroad for leisure purposes, you can only claim for the business days, not the additional leisure days.
- Business expenses can 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.
- The majority of limited company expenses can be offset against your company’s corporation tax liability – although there are some exceptions, including business entertainment.
- Try to maintain an accurate record of pre-formation and running costs, including VAT receipts, so you can justify your actions if you’re queried about your business expenses claims in the future.
How to claim expenses as a limited company
You can either pay your limited company’s expenses straight from your business account or as a reimbursed expense if you decide to fork out from your own pocket. Employees can claim expenses too, so it’s worth creating a company expense form and policy to make sure everyone understands how much they’re allowed to spend and where.
Top tip: Remind your staff to keep hold of all their receipts and collect their expense forms at the end of each month.
How to keep a record of limited company business expenses
You need to run a tight ship when it comes to keeping track of your limited company’s business expenses. Without accurate record keeping, HMRC could knock back your expenses claim. Whether it’s business mileage, fuel costs or equipment, it’s important to keep physical and digital copies of all relevant receipts. You might want to create an expenses spreadsheet that you can update and amend throughout the year.
Limited company expenses you can claim
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.
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.
Advertising, marketing and PR expenses
You work hard to shout about your services through 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.
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.
The bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Childcare costs aren’t directly linked to the management of your business and as such, can’t be claimed as a business expense.
Use of home as office
If your home is the heart of your business, you’re able to claim a percentage of your household costs and utility bills as business expenses. This cost could be claimed as a rate of £4 per week or by working out what rooms you use for your business needs and the amount of time they’re used for work purposes. You’re also able to claim the costs of lighting, heating, postage and printing costs and accountancy and legal services as limited company expenses too – as long as they’re used solely for business purposes.
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.
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.
Work phone contracts and broadband payments 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, 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.
Annual staff 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.
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.
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.
Travel expenses can be claimed as limited company expenses if:
You’re responsible for paying the travel costs
Travel is necessary for work purposes and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and a permanent workplace.)
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
Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claim.
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
Startup costs can be claimed as limited company expenses for up to seven years before a company starts trading. Common pre-formation business expenses include laptops and computers 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 to pay NICs.
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 personal.
Generally speaking, 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. However, these business entertainment costs would be disallowed in the company profits, giving you the same result as not claiming in the first place.
Nobody wants to pay more tax than they have to, which is why keeping your business as tax efficient as possible could help save you a pretty penny. Remember, the golden rule when it comes to working out what allowable expenses you can claim for your limited company: they must be incurred wholly, exclusively and be necessary for the running of your business.
If you’re finding the process of working out what allowable expenses your limited company can and can’t claim, get in touch with us for advice to make sure everything is above board.
Please check our Free Stuff Hub for more tax advice.