Company expenses: what a limited company can deduct
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.
Written by James Whitfield · Last reviewed 4 November 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
- Deductible expenses must be wholly and exclusively for the business.2
- Each £1,000 of genuine expense saves £190-£265 in corporation tax.1
- Equipment usually gets relief via capital allowances (often the Annual Investment Allowance).1
- Use of home is £6/week without receipts; client entertaining is never deductible.2
Company expenses that are wholly and exclusively for the business reduce taxable profit, so each £1,000 saves £190 at 19% and up to £265 in the marginal band.
Salary, employer pension contributions, business travel, equipment (via capital allowances), software and accountancy all qualify. Client entertaining does not, and mixed private/business costs must be apportioned.
- ·Test: wholly and exclusively for the business
- ·Saving: 19%-26.5% of the spend
- ·Use of home: £6/week without receipts
- ·Client entertaining: not allowable
The basic rule: wholly and exclusively
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.
Director expenses through the company
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.
Benefits in kind and the P11D
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 15%).
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.
Capital allowances vs revenue expenses
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.
What an extra £3,000 of expenses is worth to a director
Every allowable expense lowers taxable profit, but what it is worth to you depends on how you would otherwise have taken the money. Take a director on £12,570 whose company would have made £60,000, and add £3,000 of genuine business costs:
| Corporation Tax£570.00 saved at 19% | £8,795.95 → £8,225.95 |
| Dividend taxless profit to pay out | £3,977.34 → £3,716.12 |
| Take-home£2,168.78 less cash for £3,000 of costs | £46,091.21 → £43,922.43 |
In other words, a £3,000 business cost paid through the company costs this director about £2,169 of take-home, not £3,000. The same item bought personally from taxed dividends costs the full £3,000. That is the whole case for putting genuine business costs through the company, and why the wholly-and-exclusively test matters: a cost that fails it saves nothing and may be taxed as a benefit.
For a list of what can and cannot be claimed, with travel, home office and equipment rules, see the practical expenses guide.
Frequently asked questions
Can the company pay for my home broadband?+
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.
Can I claim for entertaining clients?+
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.
What is the Annual Investment Allowance?+
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.
Do expenses need to be in the company's name?+
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.
Where these figures come from
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
- Claim capital allowances www.gov.uk/capital-allowances
- Expenses and benefits: A to Z www.gov.uk/expenses-and-benefits-a-to-z
- Running a limited company www.gov.uk/running-a-limited-company
Estimate your limited company tax
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.