What expenses can UK limited companies claim?

Allowable business expenses: the core HMRC principle

HM Revenue & Customs (HMRC) allows a limited company to claim a cost as a business expense when the company incurs the cost wholly and exclusively for business purposes. This principle sits at the centre of the rules on Corporation Tax relief and guides how a company should judge each item of spending. Personal costs, or costs with a clear private benefit, usually fall outside the rule and can create a tax charge for the director or employee who benefits.

In practice, a company should ask whether the expense supports trading activity and whether the company would still incur the cost if the private element did not exist. Mixed-use costs need careful treatment. For example, a phone contract used for both work and personal calls may require an apportionment so the company claims only the business share. Good records matter, since HMRC can ask for evidence such as invoices, receipts, and a clear explanation of the business reason.

HMRC sets out the approach in its guidance on allowable expenses for limited companies at GOV.UK. When uncertainty remains, professional advice can help a company apply the rule consistently and avoid errors.

Staff costs and payroll-related expenses (including pensions)

Staff costs usually qualify as allowable expenses when a limited company incurs them for business purposes. Typical examples include gross wages, overtime, bonuses, commission, and employer National Insurance contributions. The company should keep clear payroll records and ensure payments match contracts and payslips, since HM Revenue & Customs may ask for evidence. Guidance on payroll and employer duties sits on the HM Revenue & Customs (HMRC) website.

Payroll-related costs can also include statutory payments, such as Statutory Sick Pay and Statutory Maternity Pay, when the company runs them through payroll. Fees for payroll administration and software can qualify as well, provided the service supports the business and the invoices sit in the company name.

Employer pension contributions often count as allowable, including payments made under auto-enrolment. A company can usually claim Corporation Tax relief on employer contributions paid to a registered pension scheme, as long as the amounts remain justifiable for the role and the business. Directors can receive employer pension contributions too, although the company should document the basis for the level of funding, especially where a director has a close connection to shareholders.

Training costs for employees can qualify when the training relates to the employee’s duties and maintains or improves skills used in the business. Recruitment costs, such as agency fees and job adverts, also tend to qualify when the company hires staff to support trading activities.

Travel, subsistence, and accommodation for business journeys

Limited companies can usually claim travel, subsistence, and accommodation costs when a director or employee makes a necessary business journey. The trip must relate to the company’s trade, such as visiting a client site, attending a supplier meeting, or travelling to temporary workplaces. Claims often cover public transport fares, mileage for business use of a personal vehicle, parking fees, and tolls. When a company pays mileage, the simplest approach often uses HMRC approved mileage rates, which set tax-free limits for business travel.

Subsistence refers to reasonable food and drink costs that arise because of the journey. Accommodation can also qualify when an overnight stay is necessary for the business purpose. Receipts should support each claim, and records should show the date, destination, and reason for travel. Clear evidence helps if HM Revenue & Customs (HMRC) asks for justification.

Private elements can restrict relief. For example, commuting between home and a permanent workplace normally counts as ordinary travel, even when a director chooses to work from home. Where a trip mixes business and personal time, the company should apportion costs on a fair basis and only claim the business share.

Use of home, utilities, and premises-related costs

Premises-related costs can qualify as allowable expenses when the company incurs them for business use and keeps clear evidence. Claims often differ depending on whether the company rents or owns premises, or operates from a director’s or employee’s home.

For rented premises, typical costs include rent, business rates, service charges, building insurance, and repairs. A company can also usually claim utilities such as electricity, gas, and water, plus cleaning and waste collection. Capital improvements (for example, an extension or major refit) usually fall outside day-to-day running costs and may receive different tax treatment.

When the company uses a home as an office, the company should only claim the business element. HM Revenue & Customs (HMRC) accepts reasonable methods of apportionment, such as:

• Time spent working from home (for example, evenings and weekends versus full-time use).
• Space used for work (for example, one room out of a set number of rooms).
• The type of cost (for example, broadband may have a clearer business link than council tax).

Common home-working costs include a proportion of heating, electricity, broadband, and home insurance. Mortgage capital repayments do not qualify as an expense, although a proportion of mortgage interest may be relevant in some cases. Where a room has significant private use, the company should restrict the claim to avoid creating a personal benefit.

Some businesses prefer a simpler approach and reimburse a fixed home-working amount, provided the figure remains reasonable and supported by records. Keep invoices, meter readings where relevant, and a short note explaining the method used. HMRC guidance on allowable expenses and record keeping sits on the GOV.UK expenses and benefits A to Z pages.

Office running costs: equipment, software, and consumables

Office running costs often qualify as allowable expenses when the company buys items for day-to-day trading and uses them for business purposes. Typical equipment includes laptops, monitors, printers, phones, desks, and ergonomic chairs. A company should keep invoices and note who uses each item, since mixed business and private use can restrict the claim or create a separate tax charge.

Software and online services can also fall within allowable costs when the subscription supports the trade, such as accounting, project management, design, or cyber security tools. Evidence should show the business need, the subscription period, and the paying account. When a company buys higher-cost equipment, the tax relief may come through capital allowances rather than being treated as a simple running cost. Guidance on capital allowances sits on GOV.UK.

Consumables cover items that the business uses up, such as printer paper, ink, postage, stationery, cleaning products for the workplace, and small kitchen supplies for staff. A company should separate client entertaining from staff welfare, since HM Revenue & Customs treats entertaining differently. Clear records, consistent categorisation, and a brief note of purpose help support claims if HMRC requests evidence.

Professional fees, financial services, and insurance premiums

Professional fees often qualify when a limited company incurs the cost to run the business and meet legal or regulatory duties. Common examples include accountancy fees for preparing statutory accounts and Company Tax Returns, bookkeeping support, and payroll bureau charges. Companies House filing fees also usually qualify, since the company must submit confirmation statements and accounts; see Companies House. Legal fees can be allowable when they relate to trading matters, such as drafting commercial contracts or recovering a business debt, while costs linked to buying property or changing share capital may need different treatment.

Bank charges and interest on business borrowing can also qualify, provided the finance supports the trade rather than private spending. Insurance premiums usually count when the policy protects the business, such as employers’ liability, public liability, professional indemnity, or commercial property cover. HMRC guidance on allowable expenses and record keeping provides a useful reference point; consult HM Revenue & Customs (HMRC). Keep invoices, engagement letters, and policy schedules to support each claim.

Marketing, client entertainment rules, and hospitality exceptions

Marketing and advertising costs usually qualify when the company incurs them to promote the trade and win or retain customers. Typical examples include website hosting, search advertising, printed materials, and sponsorship that supports brand awareness. The key test remains business purpose, supported by invoices and a clear link to trading activity.

Client entertainment sits under stricter rules. HM Revenue & Customs treats most business entertainment of clients, prospects, or suppliers as disallowable for Corporation Tax, even when the company arranges the event to generate sales. That treatment often surprises directors, so records should separate entertainment from other marketing spend. HMRC guidance on business entertainment explains the approach and common examples; see HMRC Business Income Manual (BIM45000).

Some hospitality can still qualify when it forms part of a wider business activity rather than entertainment. For example, light refreshments provided at the office for a meeting, or reasonable catering at a staff training session, often counts as a normal business cost. Staff entertaining can also qualify when it meets the conditions for annual events, such as an annual party within the per-head limit, provided the event remains primarily for employees. Clear attendee lists and receipts help support the correct tax treatment.

Record-keeping, evidence requirements, and common claim errors

Strong records support an expense claim and reduce the risk of adjustments at enquiry. Keep invoices, receipts, and contracts that show the supplier, date, amount, and what the company bought. Where a receipt does not explain the business reason, add a short note at the time, such as the project name or client reference. Maintain a clear audit trail from the bank transaction to the accounting entry, and retain mileage logs that show dates, routes, and business purpose.

HM Revenue & Customs (HMRC) expects evidence that the cost was “wholly and exclusively” for the trade, so mixed-use items need a fair apportionment. Common errors include claiming personal costs through the company, misclassifying capital purchases as day-to-day expenses, and missing VAT evidence for VAT-registered companies. Late posting also causes problems, as directors often lose receipts or forget the context, which weakens the claim.