Home / Guides / Limited Company Allowable Expenses: A Practical Guide 2026/27
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 or incomplete expense picture overstates the tax bill and distorts the salary, dividend and pension choices built on top of it.
Last updated May 2026. Written by the LimitedCompanyTaxCalculator.co.uk editorial team and reviewed against current GOV.UK and HMRC guidance. Results are estimates for planning only and are not tax, accounting or financial advice.
A company expense is allowable for corporation tax purposes if it is incurred wholly and exclusively for the purposes of the trade. HMRC applies this test strictly and the burden of demonstrating compliance rests with the company. The purpose of the expense at the time it is incurred determines allowability — not what the item is physically used for after purchase.
For practical purposes, this means that expenditure genuinely related to running the business — software used in client work, insurance for business assets, professional fees for accountancy and legal advice, business travel, equipment used in trade, and staff costs — is generally deductible. Expenditure that primarily serves the personal interests of the director, or that has a significant personal element without a clear business proportion, is not fully allowable.
Where an expense has a dual purpose — partly business, 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 and 30% personally can claim 70% of the cost as a company expense, provided this split is genuine and supportable.
Director salary and associated employer NI are company expenses and are fully deductible. They reduce taxable profit before corporation tax, making a properly structured director salary highly efficient from a company tax perspective. Employer pension contributions made by the company are also deductible and carry no NI charge.
Professional fees — accountancy, bookkeeping, legal advice, company secretarial services, and professional indemnity insurance — are clearly allowable. These are recurring costs of operating a compliant company and are generally straightforward to claim. Subscription-based accounting software, cloud storage used for business files, and project management tools are also allowable where used wholly for business.
Business travel — journeys to client sites, temporary workplaces, supplier visits and business meetings — is allowable at HMRC's approved mileage rates if the director uses their own vehicle (45p per mile for the first 10,000 business miles per year, 25p per mile above that). If the company owns a vehicle, actual costs are deductible but a benefit-in-kind charge may apply on personal use.
Directors can be reimbursed by the company for business costs paid from personal funds, provided the expenses meet the wholly and exclusively test and are properly documented. Reimbursements of allowable expenses are tax-free to the director and deductible for the company. The company should maintain records — receipts, mileage logs, meeting notes — to support any reimbursement.
Subsistence costs during genuine business travel are allowable at HMRC's benchmark rates for meals, or actual receipted costs where higher. The company cannot reimburse meal costs for a director simply eating lunch at their usual place of work — subsistence only applies to costs genuinely incurred while travelling for business away from the director's regular place of work.
Entertaining clients or business contacts is specifically excluded from corporation tax deductions in almost all cases. HMRC denies relief for business entertainment costs regardless of the business purpose of the relationship. Staff entertaining — genuinely for all employees — is allowable up to £150 per head per year. A director working alone in a single-director company cannot claim the annual staff entertaining exemption.
A director who works from home has two main options for recognising home office costs through the company. The first is a company payment for use of home office — HMRC allows a reasonable flat rate for this, and GOV.UK guidance sets out acceptable amounts. This is the simpler approach: the company pays the director a fixed amount for use of the home as a workplace, and this is deductible from company profit.
The second option is for the director to formally rent office space to the company. The company pays a market-rate rent, which is deductible as a business expense. The director receives the rental income personally, which is subject to income tax (but not NI). This can be more efficient at higher income levels but requires the arrangement to be genuinely documented, commercially justified, and on arm's-length terms.
The rental arrangement also has a significant long-term risk: if part of the director's home is formally used as business premises under a rental arrangement, it may create a capital gains tax charge on that portion of the property when the home is eventually sold, as private residence relief may be partially denied. This risk makes the simpler flat-rate approach more appropriate for most directors.
Equipment, computers, machinery and similar assets are capital expenditure rather than revenue expenditure. They are not deducted as a normal expense through the profit and loss account. Instead, capital allowances — most commonly the Annual Investment Allowance (AIA) — provide a corporation tax deduction in the year of purchase.
The AIA allows companies to deduct the full cost of qualifying capital assets up to £1 million in the accounting period. For most small limited companies, this means all computer equipment, office furniture, tools and similar items can be fully deducted in the year of purchase. The accounting treatment records them as capital assets on the balance sheet, but the AIA provides the tax deduction immediately.
Dividends paid to shareholders are not a company expense and do not reduce taxable profit. This is a fundamental feature of limited company taxation: dividends are distributions of post-corporation-tax profit, not a cost of the business. Including dividends as an expense is an error that would understate corporation tax and potentially 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 the director pays personally and is reimbursed, only the business proportion is allowable.
No. Dividends are paid from post-corporation-tax profit and are not an allowable deduction. Including them as expenses is incorrect and would understate the corporation tax liability.
Generally no. Client entertainment is specifically excluded from corporation tax deductions. Staff entertaining (for all employees, not just directors) is allowable up to £150 per head per year. A sole-director company cannot claim the staff entertaining exemption for the director's own entertainment costs.
Receipts for each expense, a clear business purpose, and documentation that the expense meets the wholly and exclusively test. Mileage claims require a mileage log with dates, destinations and business purpose. The company should formally record and approve director expense claims through its 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.