Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.
Limited company expenses: allowable expenses in the UK & Ireland
Patrick Whatman
Published on October 3, 2023
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Finance teams have to keep their companies compliant with tax laws, while also not overpaying tax or missing out on advantages. And crucially, without wasting time and resources just to save a few pennies.
This requires a good understanding of the rules, and tight internal controls to ensure that costs are well categorised and above board.
The good news is that the nuts and bolts are relatively clear. There’s good guidance on what constitutes an allowable expense, and tracking and reporting these is also fairly easy.
Here are the rules and principles around limited company expenses in the UK and Ireland.
Limited company expenses: what are the rules?
The basic premise of tax deductible expenses is relatively simple: companies should only pay tax on their profits. Since expenses are losses, these should normally be tax free.
When costs qualify for tax-free status, HMRC calls them “allowable expenses.” So what counts as an allowable expense?
Allowable expenses
Here’s what you need to know about allowable business expenses:
You can only claim as expenses costs that were solely and fully incurred to run your business. You need to show that they have a real “business purpose.”
Expenses also need to be “necessary.” The most common examples (see below) are generally accepted as being necessary, but any truly outsized or unusual claims could be challenged.
If you have expenses which are partly incurred for non-business reasons, you can only claim relief for the proportion that related to running your business. This isn’t always easy to determine.
Allowable expenses reduce your corporation tax liability, as they reduce your taxable profit.
You need accurate records of each cost incurred. While you may not have to file every receipt with your annual tax return, these are vital in case of audit.
Personal vs business expenses
You can only claim tax relief where costs have a clear business use. This becomes complicated where you use a personal car for business, or where you travel for a mix of professional and pleasure reasons.
To claim these costs, you need to clearly show how much of what was charged was directly contributing to business.
List of allowable expenses
HMRC
In the UK, HMRC gives a list of allowable expenses, including:
Office expenses for things like stationery, furniture, or phone bills
Business travel costs including parking, fuel, or transport fares
Uniforms and other clothing expenses
Payroll, salaries, and subcontractor costs
Stock or materials which you buy to then sell on
Financial expenses for things like bank and services fees, legal advice, and business insurance policies
Rent and utilities, as well as business rates
Marketing and advertising, including mail outs, broadcast, digital advertising, and web hosting
Training and education to help employees grow and learn
Note: HMRC’s advice states that allowable expenses “include” those above. Therefore the list is non-exhaustive. But you can be confident that legitimate costs that fall within the above list are indeed allowable.
Revenue (Ireland)
In Ireland, Revenue provides a similar list:
The purchase of goods for resale
Employees' pay
Rent and bills for your business premises
Running costs for vehicles or machines that you use in your business
Lease payments for vehicles or machines that you use in your business
Accountancy fees
Interest payments for money you borrowed to finance your business
Start-up and set-up costs incurred to launch the business
Further limited company expenses examples
Above we have the broad categories as shared by HMRC. Here are some more concrete examples.
Travel expenses
One crucial note for all business travel expenses: regular commuting must be excluded when claiming expenses. Travel to a temporary workplace, to visit clients, or for what is clearly otherwise a “business trip” is deductible.
Accommodation costs where an employee stays overnight away from home.
Public transport costs, but again the typical commute doesn’t count.
Food and drink as part of a legitimate business trip. Your daily lunch is not deductible.
Congestion charges and tolls when travelling for work.
Parking fees, but not when just visiting your normal office.
Business calls and printing costs while away from the office.
Business mileage while travelling in a private car for work. This has its own system of flat rates known as the mileage allowance.
Fees and charges
Bank charges, including card and bank business bank account fees, and loan and credit card interest.
Start-up & incorporation expenses, including external legal advice, accountancy fees, website setup and domain charges, and registering the company’s name. You can reclaim these from before the company began trading, up to seven years.
Insurance including employers liability, contents, and professional indemnity insurance. Private medical insurance for employees is considered a “benefit in kind,” and is therefore still attracts National Insurance contributions and personal tax for the employee. Essentially, it’s part of their wages.
Office expenses
Office costs & equipment, including computers, furniture, printers, and phone bills. If equipment also has a personal use (like a mobile phone), you must clearly distinguish and only claim business costs.
Human resources
Training courses & professional development are business expenses, provided they are necessary. Non-essential training or accreditations might be considered a benefit in kind.
Salaries are a business expense and therefore deductible. But be conscious of the National Insurance threshold, at which point you have to start making contributions.
Exception: business entertainment
Entertainment lives in an in-between world for HMRC. How to deduct this depends on the nature of the entertainment (and who pays). Here are the general rules (but it’s always best to seek advice):
Entertaining clients counts as a business expense, and is therefore tax free.
Entertaining employees may count as a “trivial benefit” (and won’t be taxed) if it costs less than £50, isn’t part of their salary, and isn’t a bonus or reward for performance. The Christmas party is one such example.
Non-business entertainment is otherwise typically subject to tax and National Insurance, particularly where it’s arguably a form of payment or reward.
How to track and claim limited company expenses
“Claiming” expenses in this sense is actually a misnomer - these expenses actually reduce your company’s profit. And because your business is only taxed on profit, you therefore reduce your corporation tax bill. So you don’t need to claim tax back if you accurately report in the first place.
The actual claim and payment process is theoretically simple:
In Ireland
Companies must file a corporation tax return via the Revenue Online Service and pay tax owed within nine months of the end of the accounting period.
Calculate and pay preliminary tax by the due date
Complete a CT1 Form and 46G Form by the return filing date (above)
Pay the balance, if any
In the UK
Similar to Ireland, companies must file their self assessment online unless they have a reasonable excuse (or would like to file in Welsh).
For smaller companies (taxable profits up to £1.5 million), you must pay nine months and one day after the end of the accounting period.
For companies with between £1.5 million - £20 million in taxable profits, you must pay in instalments. The first instalment is due six months after the accounting period, then three months after that, then three months, then a further three months. These are four equal payments.
Companies with more than £20 million in taxable profits need to pay sooner. The first instalment is due two months and 13 days after the accounting period, and then every three months for a total of four instalments.
Calculating your corporation tax liability
As noted previously, to calculate your tax liability you need to clearly know your profits. This has a relatively simple:
Taxable profit = total income (sales) - allowable expenses
And this is where all the expense examples above become important. You will doubtless have other costs which reduce your overall profit, but not your taxable profit.
Your ability to accurately record the amount and nature of each expense is critical. If you can’t easily determine whether a cost on your books is “allowable” or not for tax purposes, you can’t responsibly deduct it from your profits. So you’ll have to pay undue tax.
How to track company expenses easily
Tracking expenses isn’t too complicated for a sole trader or very small business. You remember each payment and can always run back through the credit card statement if necessary.
But it quickly becomes tricky with dozens or hundreds of employees, remote staff, multiple entities, ongoing subscriptions, and shared company cards. At the very least, it costs your finance team valuable hours (even days) just trying to reconcile these payments at the end of the tax year.
The only real solution is to track expenses closely in real time, and that’s where spend management makes all the difference. A good spend management solution centralises all your business payments, whether made by expense claim, company card, or invoice.
Here’s what is looks like:
Every payment is logged in real time
You know the user (payer), approver, and budget owner
Payments are assigned to a cost centre and expense category, so you instantly know whether this was work travel or business entertainment (for example)
VAT is identified and extracted where appropriate
All of this is exportable straight to your accounting tool or ERP. So that “loss” column of your P&L is always up to date.
If you want a fast, accurate, and easy end-of-year closing period - and a lower tax bill - a good spend management solution is a no-brainer.
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