Running a business/Limited Company involves various costs, especially for a limited company in the UK. However, did you know that many of these expenses can be claimed as tax-deductible, effectively lowering your company’s taxable income? Understanding what qualifies as deductible can significantly benefit your bottom line. In this list, we have shared a comprehensive list of the various expenses your limited company can claim.
However, before starting the list of claimable limited company expenses, here are quick overview of these expenses.
Maximizing Tax Relief: Understanding Deductible Expenses For Your Limited Company
Operating a limited company involves several costs, but the good news is many of these can be deducted from your income to lower your taxable profit. For example, if your revenue totals £35,000 and you have £5,000 in eligible expenses, you’ll only pay tax on £30,000.
To qualify for a deduction, an expense must be “wholly and exclusively” for your business. If an expense serves both personal and business purposes, you can only claim the portion used for business.
It’s vital to know which expenses are deductible to ensure you’re following HMRC guidelines and fully benefiting from available tax reliefs.
Tax-Deductible Limited Company Expenses
You can handle your limited company’s expenses by either paying directly from your business account or reimbursing yourself if you cover costs personally. Employees can also claim expenses, so setting up a company expense form and policy is a good idea to clarify spending limits and procedures.
Tip: Encourage your team to keep all receipts and submit their expense forms at the end of each month.
- Eye Tests and Health Check Claims
For employees who frequently work with computer screens, eye tests and health checks can be claimed as business expenses. Prescription glasses or contact lenses are also eligible for reimbursement, provided they are used solely for screen-based tasks related to their role.
- Business Insurance Costs
You can deduct the cost of business insurance policies as company expenses, provided they are used exclusively for business purposes. This includes various types of insurance such as public liability, employers liability, professional indemnity, and contents insurance.
- Claiming Marketing, Advertising, and PR Costs
Investing in advertising, marketing, and PR is crucial for promoting your services. Whether it’s a one-time expense or a recurring fee, you can claim these costs as business expenses, provided they are used exclusively for business purposes.
- Business Travel and Lodging Costs
You can deduct travel expenses for trips made exclusively for business, excluding routine commutes between home and a permanent office. Eligible expenses include:
- Vehicle-related costs, such as fuel, parking fees, tolls, insurance, and maintenance
- Travel fares for flights, trains, buses, taxis, and ferries
- Costs for meals and accommodation during overnight business trips
- Mileage Reimbursement for Limited Companies
As a director of a limited company, you can recover mileage costs from HMRC if you use your personal vehicle for business purposes and cover the fuel expenses. HMRC recognizes the following types of business journeys:
- Deliveries and other work-related travel
- Commutes between two workplaces for the same job
- Travel from an employee’s home to a client
- Visits to temporary work sites
You can claim mileage at these rates:
| Vehicle Type | First 10,000 Miles | Miles Beyond 10,000 |
| Car, Van | £0.45/Mile | £0.25/Mile |
| Motorcycle | £0.24/Mile | £0.24/Mile |
| Bicycle | £0.204/Mile | £0.20/Mile |
Note: Fuel costs can only be claimed if the vehicle is company-owned.
- Bank Fees
You can claim bank charges related to your business accounts, including fees for credit cards and loan interest, as business expenses.
- Home Office Expenses
If you run your business from home, you can claim a portion of your household costs and utility bills as business expenses. You can either use a flat rate of £6 per week or calculate the expenses based on the proportion of your home used for business and the time spent working. Additionally, you can claim costs for lighting, heating, postage, printing, and professional services like accounting and legal support, provided they are used exclusively for business purposes.
- Gifts, Entertainment, and Other Small Benefits
You don’t need to pay tax or National Insurance on gifts or benefits for employees, known as trivial benefits, if they meet the following criteria:
- They are not stipulated in the employee’s contract.
- They are not given as a reward for performance or work.
- They are not cash or cash vouchers.
- They cost £50 or less to provide.
If the gifts or benefits do not meet all these conditions, you will need to pay tax on them.
- Professional Subscription Costs
You can claim the cost of industry-specific magazines, journals, and books as business expenses. For example, if you run a consulting firm and subscribe to a business strategy journal, you can deduct this expense. It’s a valuable resource for staying updated on industry developments and enhancing your expertise.
- Phone and Broadband Costs
You can claim the cost of work-related phone contracts and broadband payments as business expenses. If your mobile phone contract is in your company’s name and used exclusively for business, you can deduct the full bill. For personal contracts used partially for business, you’ll need to divide the costs and claim only the business portion. You can also claim expenses for business calls made from your home phone line.
- Annual Staff Celebration Costs
You can claim expenses for annual staff parties, such as Christmas celebrations or summer outings, as business expenses. The event must be open to all employees and cost no more than £150 per person to qualify for a deduction.
- Professional Training & Development Costs
You can claim expenses for personal development and training courses as business deductions, provided they meet eligibility requirements. For instance, if you’re an accountant and take courses to become a chartered accountant, these training costs are eligible for deduction. Just ensure the course is relevant to your business role before enrolling.
- Startup Expenses
You can claim startup costs as limited company expenses for up to seven years before your business begins trading. Common eligible pre-formation expenses include:
- Laptops and computer software
- Internet and domain name fees
- Travel costs
- Professional services, such as accounting and legal assistance
- Director’s Salary
As a director of a limited company, you can claim your salary and the corresponding National Insurance Contributions (NIC) as allowable expenses. Keep in mind that once your salary reaches the National Insurance threshold, you will need to start paying NICs.
- Pension Contributions
Once you set up an agreement with a pension provider, contributions to your pension fund can be claimed as a limited company expense with 100% tax relief. However, there is a £40,000 annual limit on the amount you can contribute tax-free to your pension scheme, whether through your business or personally.
- Bad Debts
Bad or unrecoverable debts, like unpaid invoices, represent a financial loss when your business fails to collect payment from a customer. These debts are considered expenses because the anticipated income from the sale or service hasn’t been received.
To deduct bad debts, the amount must have been initially recorded as part of your company’s turnover, and you must verify that the debt cannot be recovered.
- Charitable Donations
Donations aren’t classified as allowable business expenses but can reduce your Corporation Tax bill. This applies to gifts made to charities, including:
- Cash donations
- Equipment or stock items your business makes or sells
- Land, property, or shares in other companies (not your own company’s shares)
- Employees on secondment
- Sponsorship payments
- Equipment and Office Costs
- Capital Allowances: You can claim capital allowances on machinery and equipment, spreading the cost over the asset’s useful life.
- Repairs and Maintenance: Expenses for maintaining and repairing equipment are deductible.
- Office Costs: Office rent, electricity, water, and gas are all legitimate business expenses. You can also claim the cost of essential office supplies, including computers, software, scanners, and printers. Office furniture such as desks and chairs can be deducted, provided it is used primarily for business purposes.
Non-Allowable Ltd Company Expenses
Some expenses can’t be claimed as business deductions:
- Personal Costs: Personal clothing, travel, or entertainment.
- Fines and Penalties: Costs from legal violations.
- Capital Expenditures: Purchases or upgrades of fixed assets, claimed over time through capital allowances.
- Dividends: Payments to shareholders, not deductible as they come from after-tax profits.
- Private Healthcare: Personal health insurance or medical expenses.
- Client Entertainment: Costs for lavish entertainment, such as dinners or event tickets.
- Childcare expenses: Childcare expenses cannot be claimed as business expenses, as they aren’t directly related to managing your business.
Conclusion
The allowable limited company expenses can greatly contribute to the minimization of the tax burden and this can be well achieved through understanding and properly claiming these allowances. Original receipts for all the expenses incurred in the operation of the business ought to be kept together with records that support the expenses claimed. To receive more individualized information, you can seek professional assistance from TaxCan Accountants and Cangaf Ltd. The experts can help a limited company’s director identify all of the potential deductions and assist with how to avoid troublesome parts of the taxes.
Combined with the overall management of these expenses and their proper reporting, your limited company can work on the general improvement of its status, as well as conforming to the fiscal legislation and, at the same time, on the possible recasting of the saved-up funds for the further development of the activities of the company.
