Home / Company expenses: what a limited company can deduct
Allowable company expenses reduce taxable profit before corporation tax is applied. Getting the expense picture 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.
An expense is allowable for corporation tax purposes 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 standard is the same as for sole traders, but the company's legal separation from its directors can make the distinction clearer.
Practical consequence: expenditure on business operations — accountancy, software, equipment, professional fees, marketing, business insurance, rent for office space used solely for business, staff costs and similar items — is generally deductible. Expenditure that benefits the director personally is generally not, unless a proportionate business split is applied.
The test is applied to the purpose of the expense at the time it is incurred, not its eventual use. A software subscription bought to run the business is allowable. The same subscription bought primarily to support a personal interest with occasional business use is not, or is only partly so.
Directors can be reimbursed by the company for genuinely business expenses they have paid personally. These reimbursements are tax-free to the director 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 genuinely business trips, subsistence during business travel, professional subscriptions relevant to the director's role, and home office costs where the director works from home under a formal arrangement.
The home office treatment for company directors is slightly different to that for sole traders. A director who uses part of their home as an office can either: be reimbursed by the company at a flat rate (HMRC provides guidance on acceptable amounts); or formally rent office space from themselves to the company, though this has additional tax consequences that need to be handled carefully.
Some expenses provided by a company to a director — 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 generally subject to income tax (charged on the director) and employer Class 1A NI (charged on the company at 13.8%).
The tax efficiency of benefits in kind depends on the specific benefit and the director's personal tax position. A company car that qualifies for a low benefit-in-kind charge may still be efficient at basic rate. Private medical insurance, which is charged at cost for BIK purposes, is typically a straightforward non-BIK efficiency only if the premium is modest.
This calculator does not model benefits in kind. If benefits form a material part of the extraction or remuneration package, factor them in alongside salary and dividends when assessing the overall position.
Equipment, machinery and similar assets are generally capital expenditure rather than revenue expenditure. They are not deducted as an expense in the year of purchase through the profit and loss account. Instead, capital allowances apply — most commonly the Annual Investment Allowance (AIA), which allows companies to deduct the full cost of qualifying assets up to £1 million in the year of purchase.
In practice, for most small limited companies the AIA is large enough to cover all capital expenditure in the year, making the distinction between capital and revenue less critical than it is 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 could lead to HMRC adjusting the profit and the resulting tax bill.
Intangible assets — software licences, website development, brand costs — are treated differently again and may qualify for separate reliefs. The calculator assumes revenue expenses only and does not model capital allowances or intangible asset reliefs.
The homepage calculator is the fastest way to turn this guidance into a concrete estimate for company tax, dividends and personal take-home.
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 business and personal use are genuine.
Business entertaining is generally not allowable for corporation tax, even if it is genuinely business-related. Staff entertaining (genuinely for all employees, not just directors) is allowable up to £150 per head per year.
The AIA allows businesses to deduct the full cost of qualifying capital assets (plant and machinery, equipment) up to £1 million in the year of purchase. Most small limited companies' capital expenditure falls comfortably 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.