Allowable company expenses reduce taxable profit before corporation tax is applied. Getting this right is foundational to every other planning decision. A weak profit number produces weak extraction decisions, distorted salary and dividend comparisons and an unreliable retained profit figure.
Updated 2026/27 · LimitedCompanyTaxCalculator.co.uk · Editorial standards · Methodology
An expense is allowable for corporation tax if it is incurred wholly and exclusively for the purposes of the trade. HMRC applies this test to both sole traders and limited companies. For companies, the legal separation from directors can make the distinction clearer.
In practice: accountancy, software, equipment, professional fees, marketing, business insurance, office rent and staff costs are generally deductible. Expenditure that benefits you personally is generally not, unless a proportionate business split is applied.
The test applies to the purpose of the expense when it is incurred, not its eventual use. A software subscription bought to run the business is allowable. The same subscription bought primarily for personal use with occasional business use is not, or is only partly so.
You can be reimbursed for genuinely business expenses you have paid personally. These reimbursements are tax-free to you and allowable for the company, provided they meet the wholly and exclusively test and are properly documented.
Common director expenses include: business travel (not commuting), accommodation for genuine business trips, subsistence during travel, professional subscriptions relevant to your role, and home office costs where you work from home under a formal arrangement.
Home office treatment for company directors is slightly different from sole traders. If you use part of your home as an office, you can either be reimbursed at a flat rate (HMRC provides guidance on acceptable amounts) or formally rent office space from yourself to the company. The rental route has additional tax consequences that need careful handling.
Some expenses the company provides to you, a company car, private medical insurance, a beneficial loan, are treated as benefits in kind rather than direct reimbursements. Benefits in kind are reported on form P11D and are subject to income tax (charged on you) and employer Class 1A NI (charged on the company at 13.8%).
The tax efficiency of each benefit in kind depends on the specific benefit and your personal tax position. A company car with a low benefit-in-kind charge may still be efficient at basic rate. Private medical insurance is charged at cost for benefit-in-kind purposes, making it efficient only if the premium is modest.
This calculator does not model benefits in kind. If benefits form a material part of your extraction or remuneration package, factor them in alongside salary and dividends when assessing the overall position.
Equipment, machinery and similar assets are capital expenditure, not revenue expenditure. They are not deducted as an expense in the year of purchase through the profit and loss account. Instead, the Annual Investment Allowance (AIA) allows companies to deduct the full cost of qualifying assets up to £1 million in the year of purchase.
For most small limited companies the AIA is large enough to cover all capital expenditure, making the capital versus revenue distinction less critical than for larger companies. But the accounting treatment must still be correct. Claiming equipment as a revenue expense when it should be a capital asset is an error that can lead to HMRC adjusting the profit and tax bill.
Intangible assets, software licences, website development and brand costs are treated differently again and may qualify for separate reliefs. This calculator assumes revenue expenses only and does not model capital allowances or intangible asset reliefs.
If broadband is used wholly for business, the full cost is allowable. If there is personal use, only the business proportion can be deducted. A reasonable apportionment is acceptable where both uses are genuine.
Generally no. Business entertaining is not allowable for corporation tax even when it is genuinely business-related. Staff entertaining for all employees (not just directors) is allowable up to £150 per head per year.
The AIA lets businesses deduct the full cost of qualifying capital assets up to £1 million in the year of purchase. Most small limited companies' capital expenditure falls well within this limit.
Ideally yes. Invoices addressed to the company are the cleanest documentation. Director expense reimbursements (personal expenditure repaid by the company) are acceptable but need a clear business purpose and supporting receipts.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.