Allowable company expenses reduce taxable profit before corporation tax is applied. Getting this right underpins every other planning decision. An incomplete expense picture overstates the tax bill and distorts the salary, dividend and pension choices you build on top of it.
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 strictly. The purpose at the time you incur the expense is what matters, not what the item ends up being used for.
In practice: software used in client work, business insurance, professional fees, accountancy, business travel, equipment used in trade, staff costs. These are generally deductible. Expenditure that mainly serves your personal interests, or has a significant personal element without a clear business proportion, is not fully allowable.
Where an expense has a dual purpose, partly business and partly personal, only the business proportion can be claimed. HMRC accepts reasonable apportionment where it is documented and consistent. A phone used 70% for business can claim 70% of the cost, as long as that split is genuine and you can back it up.
Director salary and employer NI are both fully deductible company expenses. They reduce taxable profit before corporation tax. Employer pension contributions made by the company are also deductible and carry no NI charge.
Professional fees are clearly allowable: accountancy, bookkeeping, legal advice, company secretarial services, professional indemnity insurance. These are recurring costs of running a compliant company. Accounting software subscriptions, cloud storage for business files and project management tools are also allowable where used wholly for business.
Business travel to client sites, temporary workplaces, supplier visits and meetings is allowable at HMRC's approved mileage rates if you use your own vehicle: 45p per mile for the first 10,000 business miles, 25p above that. If the company owns a vehicle, actual costs are deductible but a benefit-in-kind charge may apply on personal use.
You can be reimbursed by the company for business costs you have paid personally, as long as they meet the wholly and exclusively test and are properly documented. Reimbursements of allowable expenses are tax-free to you and deductible for the company. Keep receipts, mileage logs and meeting notes to support any reimbursement.
Subsistence during genuine business travel is allowable at HMRC benchmark rates, or actual receipted costs where higher. The company cannot reimburse meal costs for you eating lunch at your usual workplace. Subsistence only applies when you are travelling away from your regular place of work.
Client entertainment is specifically excluded from corporation tax deductions in almost all cases. HMRC denies relief regardless of the business relationship. Staff entertaining for all employees is allowable up to £150 per head per year. A sole director cannot claim the staff entertaining exemption for their own costs.
If you work from home, there are two main options. The first is a company payment for use of your home office. HMRC allows a reasonable flat rate, and GOV.UK guidance sets out acceptable amounts. The company pays you a fixed amount, which is deductible from company profit. This is the simpler route.
The second option is to formally rent office space from yourself to the company. The company pays market-rate rent, which is a deductible business expense. You receive the rental income personally, subject to income tax but not NI. This can be more efficient at higher income levels but requires genuine documentation and arm's-length terms.
But the rental route carries a long-term risk. If part of your home is formally used as business premises, it may create a CGT charge on that portion when you eventually sell. Private residence relief can be partially denied. That risk makes the flat-rate approach the right choice for most directors.
Equipment, computers, machinery and similar assets are capital expenditure, not revenue expenditure. They are not deducted as a normal expense through the profit and loss account. Instead, the Annual Investment Allowance (AIA) provides a corporation tax deduction in the year of purchase.
The AIA lets companies deduct the full cost of qualifying capital assets up to £1 million in the accounting period. For most small limited companies, all computer equipment, office furniture and tools can be fully deducted in the year of purchase. The accounting treatment records them as capital assets, but the AIA gives the tax deduction immediately.
Dividends are not a company expense. They come out of post-corporation-tax profit and do not reduce the corporation tax bill. Including dividends as an expense would understate the tax liability and could trigger an HMRC enquiry.
Yes, if the phone is provided by the company and used primarily for business. One mobile phone per director can be provided tax-free as a company asset. If you pay personally and are reimbursed, only the business proportion is allowable.
No. Dividends come from post-corporation-tax profit and are not an allowable deduction. Including them as expenses would understate the corporation tax liability.
Generally no. Client entertainment is specifically excluded from corporation tax deductions. Staff entertaining for all employees is allowable up to £150 per head per year. A sole-director company cannot claim the staff entertaining exemption for the director's own costs.
Receipts for each expense, a clear business purpose, and evidence that it meets the wholly and exclusively test. Mileage claims need a log with dates, destinations and business purpose. Record and approve director expense claims in the company's accounting records.
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.