What expenses can a limited company claim? A practical UK checklist

In short: A limited company can generally deduct revenue expenses incurred wholly and exclusively for its trade, unless a specific tax rule disallows them (Corporation Tax Act 2009, section 54). Common examples include business software, office rent and commercial staff costs. A deduction reduces taxable profit, not the tax bill pound for pound: £1,000 of allowable expenses saves £190 of Corporation Tax at the 19% small profits rate, or £250 at the 25% main rate (GOV.UK: Corporation Tax rates, expenses and reliefs: Rates).

Equipment purchases, private spending and payments to directors need separate checks. Paying through the company bank account does not, by itself, make something tax deductible. HMRC's company-expenses guidance explains the starting test.

The useful question is not simply "Can I put this through the company?" It is "What is this payment, what evidence supports it, and how should it affect the accounts and tax calculation?" This checklist is for an ordinary UK trading company. Investment businesses have different rules for management expenses.

What makes a company expense allowable?

A revenue cost normally needs a business purpose and must pass any specific restriction that applies to it. If a cost has a clearly separable business part, that part may be deductible. A payment with inseparable business and private purposes cannot automatically be rescued by estimating a business percentage. First establish what the company actually bought and why. HMRC describes the business-purpose and apportionment tests.

Use three questions when reviewing an invoice:

1. Purpose: what activity of the company does this support?
2. Type: is it a running cost, stock, a capital asset, remuneration or something else?
3. Evidence: can the invoice, contract and payment record support that treatment?

A vague bank description such as "online purchase" answers none of these. Add a short explanation while the purchase is still fresh in your memory.

Which everyday costs should you check?

Start with recurring business costs, then examine items with private use or special tax treatment separately. The table below is a review checklist, not blanket permission to deduct every item in a category. The contract, purpose and accounting period can change the answer. HMRC distinguishes revenue expenses from capital expenditure.

The employee's tax position is another question. For example, HMRC has a specific exemption for one employer-provided mobile phone where the contract is between the employer and supplier. It is not a general exemption for paying a director's personal phone contract. Check HMRC's mobile-phone rules.

Which payments need a different treatment?

Some genuine business costs are disallowed for Corporation Tax, while other payments are not expenses at all. Client entertaining is a familiar example of the first group. Dividends and repayments of a loan's principal belong to the second. Distinguishing these prevents errors in both the profit figure and the director's loan account.

Client hospitality does not become deductible simply because it helped win work. Staff entertaining has separate conditions; use the client entertaining and staff-party guide to identify the relevant category.

Dividends distribute profits to shareholders. They do not reduce the company's Corporation Tax profit. Keep the dividend declaration and voucher, and establish sufficient available profits before payment. HMRC explains taking money out of a company.

If the company pays a private bill, establish whether it is remuneration or a benefit, a director-loan movement, or an amount the director must repay. Do not hide it in "general expenses" or assume that adding it back for Corporation Tax resolves every other tax obligation.

Can a director claim a business purchase paid personally?

A director can pay a legitimate company cost personally and later recover the money from the company. Keep the original purchase evidence and identify the company purpose. Record the expense or asset and the amount owed to the director. The later reimbursement settles that balance; it must not create a second expense.

Illustration: a director buys a £240 annual software subscription entirely for the company's work using a personal card. Assuming the full subscription relates to this accounting period and is an allowable revenue cost, the company records £240 of expense and £240 owed to the director. When the company reimburses £240, the amount owed falls to zero. The total expense remains £240, not £480.

VAT recovery has its own invoice and eligibility rules. This example ignores VAT and illustrates the bookkeeping only. See who owes whom in a director's loan account for the balance-sheet distinction.

Do equipment purchases reduce Corporation Tax immediately?

Qualifying assets can receive tax relief through capital allowances, but buying equipment is not automatically the same as incurring a revenue expense. An asset may be depreciated in the accounts while a different amount is deducted in the tax calculation. Its eligibility, use, purchase date and allowance limits determine the claim. HMRC's capital-allowances overview explains the framework.

Consider a company that buys a laptop for £1,200 and records £400 of accounting depreciation. If the company qualifies for and claims a £1,200 Annual Investment Allowance on that purchase, the tax calculation adds back the £400 depreciation and deducts £1,200. It does not deduct both. This is an illustrative qualifying purchase, not a rule for every asset. Company cars, for example, have different allowance rules.

Our equipment and capital-allowances guide explains how the two records fit together.

How do you turn the checklist into a reliable return?

Keep a short schedule showing each uncertain cost, its treatment and the supporting evidence. Reconcile it to the accounts before applying tax adjustments. Separate reimbursements from the original expense, remove duplicate entries and check costs spanning the year end. An allowable expense is a deduction from profit, not a refund of the amount spent.

Use this final review:

• The company purpose and supplier are identifiable.
• Revenue costs and assets have been separated.
• Private payments and director transactions have been classified.
• Any disallowed costs remain correctly recorded in the accounts and are adjusted for tax.
• The tax computation explains the differences from accounting profit.

When your records are ready, check whether Taxley supports your company and return. You can then prepare the figures for your CT600 with a clear record of how each cost was treated.

Frequently asked questions

Can I claim a cost without a receipt?

Try to obtain a duplicate invoice or other reliable evidence of what was bought, by whom and for what purpose. A bank payment alone may not establish the tax treatment. Record the evidence gap instead of inventing a receipt or description.

Does spending £1,000 save £1,000 in tax?

No. A deductible cost reduces taxable profit. The tax effect depends on the company's applicable rate, reliefs and available profits; the company still bears the remaining cost.

Can I claim the same cost twice if I paid it personally first?

No. Record the underlying cost once, in the company's books. A later reimbursement clears what the company owes you; it is not a second purchase, so it is not deducted again.

Are the rules the same as sole-trader expenses?

No. A company is a separate entity, and payments to its director can also engage employment and benefits rules. Do not copy a sole trader's household-cost or personal-expense treatment into company records without checking it.

General information, not personalised tax or accounting advice.