Allowable expenses for a limited company: what you can claim against corporation tax

Most of what your company spends on running the business comes off its profit before corporation tax. A cost is allowable if it's a running cost rather than something you keep, it isn't on HMRC's disallowed list, and it was incurred wholly and exclusively for the trade. The part that catches people out is the last one: where a cost is part business and part personal, you can still claim the business part, as long as you can separate it.

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What are allowable expenses for a limited company?

They're the day-to-day costs of running the business, and they come off your taxable profit: salaries, rent, insurance, professional fees, the software you pay for every month. HMRC calls these revenue expenses, and defines them as costs that don't result in buying, selling, or changing a capital asset.

That definition does the first piece of work for you. A van or a laptop isn't a revenue expense, because you keep it. That's capital spending, and it gets its relief a different way.

The second condition is the one the rule is usually quoted for: the cost has to be incurred wholly and exclusively for the purposes of the trade. That's the test in section 54 of the Corporation Tax Act 2009, and HMRC's guidance on wholly and exclusively applies it to companies by name. It means the cost had one purpose, and that purpose was your trade.

It's worth being precise about what that rules out, because it's where a lot of guidance goes wrong. A cost that's part business and part personal isn't automatically barred. HMRC's guidance on company expenses you can deduct before paying Corporation Tax, published on 11 November 2025, puts it plainly: you may be able to deduct part of a revenue expense if you can clearly separate the business part from the non-business part. What fails is a single cost serving two purposes at once that you can't pull apart.

Then there's a short list of costs blocked by statute however genuine they are. Entertaining a client is HMRC's own example, and no amount of business purpose makes it deductible.

One scoping note, because it changes the answer. These are the corporation tax rules that apply to your company. A sole trader follows the equivalent income tax rules, which look similar on the surface but differ in places, so a guide written for self-employed people won't always tell you what your company can claim.

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What claiming an expense actually saves you

A deduction cuts your taxable profit, not your bank balance, so it's worth your corporation tax rate rather than the whole cost. Every £1,000 of allowable spend takes £190 off your bill at the 19% small profits rate, and £250 at the 25% main rate.

Which of those you pay depends on your profits: 19% applies up to £50,000, and 25% above £250,000. In between, Marginal Relief tapers the two together, which makes the tax saved on each extra £1,000 of spend higher than £250 rather than lower. HMRC doesn't publish a single figure for that band, because it moves with your profits and with how many associated companies you have, so the Marginal Relief calculator is the quickest way to see where your company lands. Both profit limits shrink if your accounting period is shorter than 12 months.

This is also the honest answer to the idea that claiming more expenses makes a cost free. At the main rate you get about a quarter of it back, which is worth having, but it isn't a reason to spend money you wouldn't otherwise spend.

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Common costs you can claim

Most of these will already be in your accounts. What's worth knowing is why each one qualifies, because that's what decides the borderline cases.

• Staff salaries, pensions, and employer National Insurance. The cost of employing people, as long as the employment itself is for the business.
• Office costs. Rent, utilities, phone and broadband, and supplies like stationery and printer toner. If you work from home instead, that has its own figures in the next section.
• Professional fees. Accountants, tax advisers, and solicitors, as long as the advice is about the business rather than your own affairs.
• Business insurance. A running cost of trading.
• Marketing and advertising. Generally allowable, unless the spend is capital in nature or it counts as business entertainment.
• Travel and subsistence. Train fares, flights, hotels, and meals while you're away on business. Not the commute to your usual workplace, and not entertainment. Mileage in your own car has its own rates, below.
• Software and subscriptions. What you pay monthly is a running cost. The machine you run it on isn't.
• Bank charges and interest on business borrowing. Both deductible, and the interest is the one ordinary cost that sits outside the wholly-and-exclusively test: for a company, relief on business loan interest follows your accounts under the loan relationships rules instead.

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What you can claim for your car, your home, and your phone

Four of a director's own costs have their own HMRC figures, and they're the ones most often got wrong. Two of the four changed in April 2026.

Your company can pay you HMRC's approved mileage rates for business journeys in your own vehicle, with nothing to report and no tax for you to pay. The car and van rate went up on 6 April 2026, so a figure you saw last year is out of date.

For working at home, your company can pay you £6 a week, or £26 a month if you're paid monthly, towards the extra household costs, with nothing to report to HMRC. You need to be working at home regularly, under an arrangement you've both agreed. Watch one change here: claiming the same thing as tax relief on your own return is not possible for the tax year 6 April 2026 to 5 April 2027, although the four previous years are still open. The payment your company makes is a different route, and it's unchanged.

There's nothing to report or pay on a company mobile phone where your company provides one phone or SIM card per person and the contract is between your company and the supplier. Put the contract in your own name instead and the exemption doesn't apply.

Small gifts have an exemption of their own. A trivial benefit is tax-free if it cost £50 or less, isn't cash or a cash voucher, isn't a reward for work or performance, and isn't written into a contract. If you're a director of a close company, which means a company run by five or fewer shareholders, you can receive no more than £300 of them in a tax year.

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Expenses you can't claim

Not everything the company pays for reduces its tax bill, and the reason matters as much as the answer – it's what tells you which way a borderline cost will go.

• Entertaining clients. Disallowed by statute, even where it's a genuine cost of winning the work. Entertaining your own staff is a different rule, and it's the next section.
• Fines and penalties. A fine isn't incurred wholly and exclusively for the trade, which is HMRC's reason for disallowing it. That covers HMRC's own penalties as much as a parking ticket.
• Personal costs. Anything unrelated to the company's trade, a gym membership included, however it was paid for.
• Everyday clothing. HMRC's position is that there's no deduction for a wardrobe you could wear anywhere, even if you only ever wear it for work. Protective clothing and uniforms are fine.
• Things you keep. Equipment, machinery, vans, and laptops aren't running costs, so they aren't an expense at all. They go through capital allowances instead.

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Entertaining clients, and entertaining your staff

Entertaining a client is never deductible, even when it won you the work. Entertaining your staff is. They're two separate rules, and the £150 a head you may have heard about is a third thing again.

On clients, HMRC's guidance on business entertainment is blunt: entertainment and gifts aren't allowable as a deduction against profits, even where the cost is a genuine expense of the trade. Anything incidental to it goes the same way, down to the cost of sending out the invitations. Your company can pay for the lunch. It just can't deduct it.

On your own team, HMRC's guidance on entertaining employees says staff entertaining is allowable, as long as it's wholly and exclusively for the trade and isn't customer entertaining with employees along for the ride. A Christmas party, or a staff-only sports day, isn't caught by the disallowance at all.

The £150 is often reported as though it decides your company's deduction, and it doesn't. It's a separate exemption that keeps an annual social function tax-free for the people attending: the event has to be annual, open to all your employees, and cost no more than £150 a person, counting all your annual events together. Go over that and your team has a taxable benefit to deal with. Your company's deduction is still decided by the staff entertaining rule above.

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Equipment and anything else you keep

A laptop, a machine, or a van isn't a running cost, so it doesn't come off your profit as an expense. You claim capital allowances on it instead, and for most plant and machinery that means the annual investment allowance, which lets you deduct the full cost from your profits before tax.

The annual investment allowance is £1 million a year, and it has been that for limited companies since 1 January 2019. A shorter accounting period gets a proportion of it, so nine months gives you £750,000. Cars have their own rules and don't qualify, which is the exception worth checking before you buy one.

So the practical difference is timing rather than whether you get relief at all. A running cost reduces this year's profit; a capital item is relieved through the allowance you claim. The question to settle before your year end is which pile each purchase belongs in.

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What HMRC needs to see, and how long to keep it

To claim a cost you need evidence of it: a receipt or invoice showing the amount you paid, whether VAT was included, and who the supplier was. A bank statement on its own usually isn't enough, because it shows the payment but not what you bought.

That starts with a bookkeeping system you keep up to date, which also gives you the audit trail you'll want if HMRC opens a compliance check. HMRC will ask for your financial records and digital copies of receipts, and incomplete records slow the whole thing down. There's also a fine of up to £3,000 for failing to keep proper accounting records.

You must keep records and receipts for six years from the end of the last company financial year they relate to. Keep them longer if:

• the transaction covers more than one of the company's accounting periods
• the company bought something it expects to last more than six years, such as equipment or machinery
• you sent your Company Tax Return late
• HMRC has opened a compliance check into your Company Tax Return

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The costs worth taking to your accountant

Some costs are worth handing over rather than deciding yourself, because getting them wrong is expensive and the right answer depends on your company's position:

• whether a purchase is a repair you can expense or an improvement you have to capitalise
• buying or leasing a car through the company, where the benefit in kind usually decides whether it's worth doing
• training that teaches you a new trade rather than refreshing a skill you already use
• renting a room in your home to your own company, which needs a formal agreement and can affect the tax when you sell
• anything personal that went out of the company account by mistake

An accountant can also tell you whether a relief is worth claiming alongside your expenses, such as research and development tax relief, and where expenses fit into your wider corporate tax planning.

Everything here is general information about what a limited company can deduct for corporation tax, rather than tax advice. Rates, thresholds, and allowances change at Budgets, so it's worth having an accountant confirm what your company can claim for its own accounting period.

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Limited company expense FAQs

Can I claim costs from before the company started trading?

Yes, for revenue costs. Expenses from up to seven years before trading began are treated as though you incurred them on your first day of trading, as long as they would have been allowable then. Capital spending doesn't qualify by this route, and the wholly-and-exclusively test still applies.

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Are charitable donations deductible?

Yes, and the list is wider than cash. Your company pays less corporation tax when it gives to charity: money, equipment, trading stock, land, property, shares in another company, employees on secondment, or sponsorship payments. Shares in your own company don't qualify.

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What if I paid for something personal from the company account?

It isn't an expense, so there's nothing to deduct. It becomes money you owe the company, recorded in your director's loan account.

Your company can face a tax charge on anything still outstanding nine months and one day after your accounting period ends, so check when your corporation tax is due if the dates are close.