Limited Company Expenses: What Can Your Company Claim?

Limited company expenses: what can your company claim?

A limited company can deduct some of the costs of running its business when calculating taxable profit for Corporation Tax. The key point is that a cost is not automatically deductible simply because the company paid it.

The core rule

A revenue expense normally needs to be incurred wholly and exclusively for the purposes of the trade and must not be specifically disallowed. If a cost has both business and private purposes, a deduction may be available only where the business element can be clearly identified and separated.

Common business expenses

• Business premises costs such as rent, utilities and business insurance.

• Employee salaries and employer payroll costs.

• Accountancy, legal and other professional fees incurred for the business.

• Software subscriptions, telephone and internet costs used for business purposes.

• Advertising, website and marketing costs.

• Business travel and subsistence where the relevant tax rules are met.

• Repairs and maintenance of business assets where the cost is revenue rather than capital in nature.

Expenses that need extra care

Client entertaining is a common example of expenditure that is specifically disallowed for Corporation Tax. Capital expenditure, such as buying or substantially improving a long-term asset, is not treated in the same way as an ordinary revenue expense; capital allowances may be relevant instead.

Personal costs paid by the company also need careful treatment. Depending on the circumstances they may need to be posted to a director's loan account, treated as remuneration or reported as a benefit rather than claimed as a normal business deduction.

Do not use accounting depreciation as a tax deduction

Depreciation may appear in the company accounts, but the tax treatment of capital assets is dealt with separately. For Corporation Tax purposes, qualifying capital expenditure may instead receive relief through the capital allowances rules.

Keep evidence for every claim

Keep invoices, receipts, bank records and clear explanations of what each expense was for. Good bookkeeping makes it much easier to distinguish allowable business costs from private, capital or disallowed items before the year-end accounts and Corporation Tax return are prepared.

Accounting support in Coventry

For ongoing support, see our limited company accounting packages and bookkeeping services in Coventry and Warwickshire. InChart Accounting Limited can help organise the records and identify items that need separate tax treatment.