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Navigating the financial intricacies of running a limited company can feel daunting, especially when it comes to understanding allowable expenses. Claiming the right expenses not only ensures compliance with HMRC but also reduces your corporation tax liability, keeping more cash in your business. This guide outlines key allowable expenses for limited companies in the UK, making it easy for small business owners to stay informed and maximise their claims.
Allowable expenses are costs incurred wholly, exclusively, and necessarily for business purposes. The key is that the expense must solely benefit the business and not be mixed with personal use. These costs can be deducted from your company’s profits before calculating how much corporation tax you owe.
Why claiming allowable expenses is crucial
Claiming allowable expenses is a vital aspect of managing a limited company’s finances. As well as reducing your taxable profits, it ensures your company’s financial resources are allocated effectively.
Moreover, staying compliant with HMRC rules when claiming expenses demonstrates good financial management and reduces the risk of investigations or fines. The clearer and more accurate your claims, the more confidence HMRC will have in your business’s records.
Office expenses can range from rent to everyday supplies, all of which are essential for running your business. If you rent office space, the rent and associated utility bills such as electricity, water, and heating are fully deductible. Similarly, the cost of office supplies like printer ink, postage, and paper is considered an allowable expense because these items are essential for daily operations. High-value items like desks or computers can also be claimed, although these may need to be accounted for as capital allowances, depending on their cost and lifespan.
Business travel is another key category where you can claim allowable expenses.
For instance, if you travel to meet clients or attend a business-related conference, you can claim the cost of train tickets, taxi fares, parking cost, road toll fees, or even mileage if you use your personal vehicle. HMRC sets an approved mileage rate of 45p per mile for the first 10,000 miles, which can then reduce to 25p per mile. It’s important to note that regular commuting between your home and office cannot be claimed.
When travelling for business, overnight stays at hotels and reasonable meal expenses are also allowable. However, it’s essential to avoid claiming excessive or luxury expenses, as HMRC expects costs to be reasonable and proportionate.
The wages and salaries you pay to employees, including yourself as a director, are deductible from your profits. It is crucial to ensure that your payroll is properly managed and complies with HMRC regulations. Pension contributions made on behalf of employees are another allowable expense, helping to provide financial security for your team while reducing your company’s taxable profits.
Training costs that directly benefit the business, such as a marketing workshop or IT skills course, are also considered allowable.
Marketing plays a crucial role in growing your business, and the associated costs are fully deductible. Whether it’s running social media campaigns, designing a website, or printing brochures, these expenses qualify as they directly contribute to promoting your business.
Keeping detailed records of advertising expenses and their results ensures your claims are accurate and justifiable.
Fees for professional services such as accountants, solicitors, or business consultants are fully deductible, provided they relate to your company’s operations.
Membership subscriptions to professional bodies or industry organisations can also be claimed, provided they are relevant to your trade.
Vehicle expenses like fuel, insurance, maintenance, and leasing costs are allowable, provided the vehicle is used for business purposes. Keep detailed records, as personal use may impact the deductions. VAT on fuel can also be reclaimed for business use.
Insurance is an essential safeguard for your business, and premiums for policies like public liability insurance, professional indemnity insurance, and employer’s liability insurance are all allowable expenses. These costs help protect your business from unforeseen risks and are fully deductible from your taxable profits.
The costs of maintaining a business bank account, such as monthly fees and overdraft charges, are allowable expenses. Additionally, if you take out a business loan, the interest on repayments can be claimed as a deduction, provided the loan was used solely for business purposes.
Communication expenses incurred for business purposes are fully deductible.
If your employees require regular eye tests due to computer-based work, the cost of the test is an allowable expense. Furthermore, if the test determines the need for corrective glasses exclusively for screen work, the cost of these glasses may also be claimed.
Not every business cost is deductible. Here are some common expenses you can’t claim:
The key to claiming expenses for your limited company is simple: they must be entirely, exclusively, and unavoidably tied to the day-to-day operations of your business.
E-mail us at enquiries@mylocalaccounting.co.uk or call us on 0116 298 2425