What tax-deductible expenses can limited companies claim?

Tax can feel like a lot to get your head around as a new business owner, and it’s natural to worry about getting things wrong. Understanding which expenses are tax-deductible can ensure you’re paying the right amount of tax and maximise your business’ financial efficiency.

Tax deductible expenses as a limited company can significantly reduce your Corporation Tax bill, but it’s important that you understand the rules to avoid making any errors. You may choose to work with an accountant to alleviate any anxieties - they’ll talk you through the complexities of business tax and ensure your finances are managed correctly and efficiently. 

In this guide, we’ll uncover what expenses are tax deductible and how allowable expenses for employees work, so you can navigate your business tax with ease.

What are tax deductible expenses?

As a new business, chances are you’ll need to invest in certain equipment, tools or workspace for your business to run effectively. For example, if you run a construction company, you’ll need the right equipment and safety gear to get things up and running. Your business wouldn’t be able to function without these costs, so you won’t pay tax on the money you spend on them. The costs are deducted from the business’ gross income before tax - so if your business made £250,000 in the last year, but had £8,000 worth of tax deductible expenses, only £242,000 would be subject to tax. 

For an expense to be tax deductible, its purpose must be ‘wholly and exclusively’ for your business. So, if an expense is for both personal and business use, you can only claim tax relief on what you used for business. 

What are the rules for claiming expenses tax-free?

You can’t claim just anything as tax deductible expenses. There are rules you’ll need to follow, including:

• ‘Wholly and exclusively’: You can only claim expenses that are wholly and exclusively for the running of your business. 

• No dual-purpose expenses: You can’t claim expenses that have a dual purpose for business and personal use. For example, if you bought train tickets to see a client and continued your journey for leisure purposes, you can only claim the portion of the travel that was for business. 

• Payment method: Business expenses can either be paid through your business bank account, or if you paid for a business expense with your personal account you can be reimbursed later by your business. 

• Record keeping: Make sure you keep detailed records of all business expenses, including receipts, bank statements and invoices. That way, you have evidence to justify these expenses should HMRC challenge them.

• Corporation Tax offsetting: You should be able to offset against your limited company’s Corporation Tax liability. But it’s important to note that there are some exceptions to this rule, such as business entertainment which isn’t deductible.

• Necessary and reasonable: Your tax deductible expenses should be necessary for business purposes, and a reasonable amount. 

• Claim on time: Make sure you claim expenses in the correct accounting period. For example, if you incur a business expense in May but pay it in June, it should be claimed in the May accounting period. 

What business expenses can you claim as tax deductible? 

So, what expenses are tax deductible? We’ll explain some of the most common business expenses you can claim for when starting your new business. 

Business premises’ rent

If you rent an office or other working space for your business, this is generally fully tax deductible. You can’t, however, claim expenses or allowances for buying business property or premises.

Business insurance

As a new business owner, the last thing you want is disaster striking and affecting the running of your business. While we can’t predict these things happening, business insurance can soften the blow and can offer peace of mind against the unexpected. 

As long as your policy is explicitly for business purposes, you should be able to claim business insurance as a tax deductible expense. The types of business insurance you should be able to claim for include public liability insurance, employer liability insurance and professional indemnity insurance. 

Office costs

If you pay for communicative assets such as an office landline, internet and mobile phones, you should be able to claim them as tax deductible expenses. Other office costs include stationery and office supplies, including food and drinks for employees. 

Equipment

Provided your equipment is used solely for running your business, you should be able to claim the cost as tax deductible expenses. This equipment may include office furniture, vehicles, electrical goods and stationery. 

Accommodation

When your limited company incurs accommodation costs for business trips, these expenses can be claimed as tax deductible. So, if you or your employees need to stay overnight for business reasons - such as visiting a client or project site, or attending a conference, the cost of a hotel or other accommodation can be deducted from your business’ taxable income.

Remember, the accommodation must be ‘wholly and exclusively’ for business purposes, so if you need to extend your stay for personal reasons, that duration of the trip would not qualify. Make sure you keep detailed records of the trip, including any receipts, to support your claim.

Business travel and mileage

You can claim travel expenses if the trip isn’t just regular commuting and is made ‘wholly and exclusively’ for business purposes. You can claim various travel expenses, from the costs of running a vehicle such as fuel and parking fees, to transport fares for flights.

So long as you use your vehicle for business trips and have paid for the fuel costs, you can claim back the mileage from HMRC. Just ensure that your journeys are ‘wholly and exclusively’ for business purposes, such as trips between two workplaces for the same job, going from an employee's home to a client or trips taken to complete work. Just keep in mind that you can only claim the cost of fuel if your company owns the car.

See below for the rates you can claim for travel:

Eye care

As a limited company director, you can claim eye tests and eyecare as an allowable expense against Corporation Tax, if you use a computer screen for over an hour a day. If your glasses are purely needed for work purposes you can claim the cost back against tax. But like other tax deductible expenses, make sure you’re able to prove this and that you don’t wear your glasses for personal reasons. 

Training

As a business owner, you may be able to receive tax relief on training courses and learning materials (such as books) for you and your employees. The rule around this is that the course must be related to your existing line of work and should teach you new skills too. Should the training update your skills and professional expertise, it can be viewed as a business expense which you can claim for. 

Pensions

Once you’ve come to an agreement with your pension provider, you can contribute towards your pension and it will be a tax deductible expense. Just bear in mind that there’s a £60,000 pension allowance for the 2024/25 tax year - this is the most you can pay into your pension in a single year and still receive tax relief.

Marketing and advertising costs

Most marketing and advertising for your business can be claimed as a tax deductible expense, as they are considered an essential element of running a business.

As a limited company, marketing is essential to get your name out there, connect with your potential customers and boost your profitability. As we mentioned earlier, HMRC’s rule when it comes to business expenses is that they should be ‘wholly and exclusively’ for business purposes - and this includes marketing and advertising. Just some of the marketing and advertising expenses that are tax deductible include:

• Direct marketing such as leaflets, flyers and brochures that advertise your services

• Subscription costs to join trade or professional bodies

• Social media advertising

• Website costs, including the designing, maintaining and hosting of your website

• PR activity 

  
  

Using your home as an office

If you run your business from home, you can claim a percentage of household utility costs as tax deductible expenses. Deducting your business-specific home costs could make a noticeable difference to your income over time.

If you use your home office, you can claim a rate of £6 a week as allowable business expenses. HMRC doesn’t ask you to keep a receipt for this and it isn’t considered a benefit in kind, so you don’t need to pay tax on the amount. 

You may be able to claim a portion of household costs used by the business, such as utilities and other household expenses. You’ll need to work out which rooms you use for your business and how much time you spend using them for business purposes. From there, you can calculate the proportion of utilities that you can allocate to business use. You can also claim for basic office expenses, such as stationery, printing costs, accountancy and other office supplies. 

What are allowable expenses for employees?

If you’re a limited company with employees, there may be personal expenses they’ll need to cover to fulfil their duties, which you as a business can claim back. For example, your employees may need to purchase lunch while attending a work-related event or visiting clients. You can reimburse these expenses to your employees through your payroll system and then claim them as tax deductible expenses. That way, the money they’ve spent on work-related expenses won’t affect their personal finances.

What type of expenses aren’t tax deductible?

Some company expenses aren’t eligible for tax deduction, meaning they can’t be claimed as legitimate business expenses. 

Some examples of expenses that aren’t tax deductible include:

• Fines and penalties: Any fines, penalties and legal fees incurred due to breaking the law or regulations

• Personal expenses: As the name suggests, any expenses that are purely personal and aren’t related to business such as personal clothing, personal travel and personal entertainment

• Income as dividends: Dividend payments to shareholders aren’t considered allowable expenses

• Donations not made via gift aid: Any donations made to charities, clubs, or political parties

• Client entertainment: Any expenses incurred purely for entertainment, including gifts and hospitality offered to clients, customers or suppliers

How do you claim tax-deductible expenses?

Worked out what tax deductible expenses you can claim for? Next, you’ll need to gather your financial records for the year, including receipts for your expenses and submit your claim. You do this through your annual self-assessment tax return. 

You don’t need to submit your records with your tax return, but should keep them on hand in case HMRC queries any of your expenses. You may benefit from working with an accountant to keep track of your business expenses and submit your tax return accurately and efficiently. That way, you’ll have a professional at hand to make sure all your documents and processes are compliant with HMRC. 

Start your business journey 

Tax deductible expenses as a limited company can feel tricky to get your head around, and the last thing you want is to face any potential fines. But by understanding what you’re entitled to claim for, you can significantly reduce your taxable profits and boost your business’ profitability. 

With Start Up A-Z, it’s never been easier to step into those entrepreneur shoes and chase your business dream. You can register as a limited company for free, and you’ll have our support at every stage of your journey.