Allowable business expenses for Limited Company Directors: explained

Business expenses are costs a limited company can claim back from its income in order to reduce the company’s taxable profit and therefore lower the amount of corporation tax due. These expenses are only allowable if they are wholly, exclusively and necessarily for business purposes. 

For many directors, understanding what can and cannot be claimed is a minefield. Getting it wrong can result in penalties from HMRC, whilst shying away from claiming leaves potential savings on the table. 

In this guide, we’ll explore the types of expenses you can claim, how to tell if an expense is allowable or not, and answer the most common questions that we hear from business owners. 

• Only expenses that are wholly, exclusively, and necessarily for business purposes are allowable 
• Maintain proper records to prove to HMRC that your expenses are legitimate 

• Use a business bank account to separate your business expenses from personal ones 

• If you’re ever unsure whether an expense is allowable, speak to your accountant 

Travel is one of the most common business expenses for limited company directors, but not everything is allowable. 

Commuting 

A common misconception is that commuting to a regular workplace counts as an allowable expense. 

HMRC only allows travel expenses to temporary workplaces, those being locations that you do not expect to work at for more than two years. It’s also important to understand that HMRC may treat a workplace as permanent if you spend 40% or more of your working time there and expect that arrangement to continue for more than 24 months. 

If your travel expenses meet that criteria, you can typically claim for: 

• Mileage in your personal vehicle (45p per mile for the first 10,000 miles per tax year, 25p thereafter) 

• Public transport fares (train, bus, tube, taxi, air travel) 

• Parking, tolls and congestion charges 

Subsistence expenses

When travelling for business, you can also claim the cost of: 

• Meals 

• Hotel stays or other reasonable accommodation 

• Incidental overnight expenses such as laundry costs or newspapers (up to £5 per night in the UK, or £10 outside of the UK and it must be receipted) 

Make sure you keep detailed records of your travels including mileage logs and receipts as HMRC will need proof that all these expenses are wholly for business purposes. 

Home expenses

If you run your limited company from home, HMRC will allow you to claim a portion of your household running costs as a business expense. There are two main ways of going about this: 

• Flat rate allowance: HMRC allows you to claim £6 per week without needing to provide receipts 

• Detailed calculation: If you work from home extensively, you may be able to claim a higher amount. You can do this by calculating the portion of your household bills (such as heating and electricity) that is used for business purposes 

If you’re unsure about which option is best for you, read our blog on home expenses or speak to your Client Director for bespoke advice. 

Internet and broadband 

• If your company pays for a dedicated business broadband line (in the company’s name), the full cost is allowable 

Mobile phones

• If you use a personal phone, you can only claim for the cost of business calls 

• If you are looking to buy a new mobile phone then it is worth considering getting the contract in your Company’s name as the whole cost would be allowable 

• Companies can provide one mobile phone per employee, tax-free 

Professional services

Fees paid to accountants, solicitors and business advisors are allowable where the fees only relate to the company. Examples of allowable expenses include: 

• Accountancy fees 

• Bookkeeping 

• Tax advice 

• Contract reviews 

• Legal advice on your business activities 

It’s important to note that certain legal advice such as for personal matters or for the purchase of fixed assets (e.g. property) are not considered allowable business expenses. 

Training and development

For training costs to be allowable, they need to update or enhance a skill you already use in your trade. Training for completely new skills in an unrelated field can’t be claimed. 

For example, a programmer learning a new coding language can claim that cost but retraining as a driving instructor would not be allowable. 

Expenses such as the entertainment of staff or clients, trivial benefits, gifts and charitable donations, all have different rules, depending on who they benefit. 

Trivial benefits

You can provide small gifts or perks to your employees without triggering a tax charge per tax year – for example a bottle of wine or a bunch of flowers to celebrate a special occasion. The basic rules for what qualifies as a trivial benefit are as follows: 

• Each item cannot exceed £50 in value 

• Gifts must not be in cash (or cash vouchers) 

• For directors, the annual limit for all trivial benefits is £300 in total 

For more information, read our trivial benefits blog. 

Staff entertaining

You can claim the cost of annual staff events, such as a Christmas party or summer BBQ, up to £150 per person (including VAT) per accounting year. This also applies to the partners of employees. 

To be considered allowable, events: 

• The receipted cost must not exceed £150 per head, otherwise the entire amount becomes disallowable 

• Must be open to all staff, not just directors 

Client entertaining

Costs for entertaining clients (meals, drinks, events) can be claimed through your company accounts, but unlike staff entertaining they are not tax-deductible. This means you can’t claim back Corporation Tax or VAT on these expenses. 

Charitable donations

Donations to registered charities are generally allowable, provided they do not cause your company to make a loss. 

Contributions to political parties or non-registered charities are not allowable.

Covering risks and planning for the future is part of running your business successfully. While many insurance and pension costs are tax-deductible, a few have additional tax implications that you should be aware of. 

Business insurance

The following types of insurance are all considered allowable business expenses and are very commonly used by limited companies: 

• Employer’s Liability Insurance (which, by law, every limited company must have) 

• Public Liability Insurance 

• Professional Indemnity Insurance (which agencies often require) 

However, some insurances, such as paying for private medical/dental insurance through your company, will typically trigger a Benefit in Kind (BiK) charge, which will need to be reported on a P11D and may result in additional tax for the employee or director, and the company too. 

Read more about business insurance here. 

Relevant life cover

This is a tax-efficient life insurance policy set up by the company that pays out a lump sum if the insured director or employee dies (or is diagnosed with a terminal illness). 

• Premiums are paid by the company 

• Payouts are free from Income Tax, Corporation Tax, and National Insurance 

Executive income protection

This insurance pays a monthly benefit to the company if a director or key employee can’t work due to illness or injury. 

• Provides financial stability for the business 

• Usually treated as an allowable business expense 

Pension contributions made by the company on behalf of directors and employees are allowable business expenses. 

However, there are annual limits to this, so we recommend speaking to a financial advisor if you are considering pension contributions. 

Read our blog on pension contributions for a more detailed look at how they work. 

There are many everyday business costs that are allowable expenses. These often fall into marketing, technology, and general office spend – all of which can be valuable in reducing your taxable profit. 

Marketing and advertising

Allowable costs include: 

• Business cards 

• Website design, hosting and maintenance 

• Social media ads 

• Promotional materials 

• Online or print advertising 

Sponsorship can also be claimed, but only if it provides a clear business benefit (e.g. sponsoring a local sports team in exchange for having your company logo on the kit). 

Computer equipment and software

• The cost of computers, laptops, tablets, and related equipment is allowable, as long as personal use is only incidental. 

• Software licences and subscriptions that are necessary for your work can also be claimed. 

VAT registered businesses can claim back the VAT on these costs but please note that if you’re using the Flat Rate VAT scheme for VAT, you will only be able reclaim the VAT element if the purchase is £2,000 ore more (this applies to computer equipment and other capital assets). Get in touch with your Client Director if you’re unsure whether this applies to you. 

Other common allowable expenses

• Subcontractor or freelancer costs 

• Trade-related books, journals, or magazines 

• Postage, stationery, and printing costs 

• Certain professional subscriptions and memberships 

Always ensure the expense has a clear business purpose. If there’s significant personal use or no direct link to company activity, HMRC is likely to disallow the claim. 

If you need more help determining whether an expense is allowable or not, speak with your SG Client Director.

Not every cost you pay through your company qualifies as an allowable business expense. HMRC has strict rules, and claiming the wrong items can lead to rejected claims, additional tax, or penalties. Here are some common examples of disallowable expenses: 

Personal lifestyle costs

• Personal holidays and personal subscriptions (e.g. Netflix, Spotify) are never allowable 

Clothing

• Everyday clothing, including suits, shoes, or general office wear, cannot be claimed 

• However, specialist clothing such as uniforms, protective gear, or costumes required for your role are allowable 

Fines and penalties

• Parking fines, speeding tickets, and other penalties cannot be claimed, even if they were incurred while travelling for work. HMRC views these as preventable and your own personal responsibility, not the company’s 

Home improvements

• Renovating or upgrading your home (even if you work from it) is not allowable unless you can prove the costs are exclusively for business and provide no personal benefit 

When in doubt, ask yourself: ‘Would I still have this cost if I wasn’t running my business?’ If the answer is yes, it’s likely disallowable. 

One of the biggest benefits of correctly claiming allowable expenses is the impact on your tax bill. 

Corporation tax savings

Every genuine business cost reduces your company’s taxable profit, which in turn lowers the amount of Corporation Tax you owe. 

Reimbursed expenses

If you personally cover business costs (like travel or subsistence), you can reimburse yourself tax-free, provided the expense is valid and properly recorded. 

Reimbursed expenses are not treated as extra salary or dividends, so no additional Income Tax or National Insurance is due. 

VAT reclaim

If your company is VAT-registered, you can often reclaim VAT on business purchases (assuming you have a valid VAT invoice). 

Claiming business expenses is only half the story – without proper documentation, HMRC can reject your claims, even if the expense itself was allowable. To ensure you’re keeping records correctly, follow these best practices: 

• Use accounting software to log expenses consistently 

• Store backups of receipts digitally 

• Track mileage with a log or app (include dates, destinations, and purpose) 

• Keep records for at least six years in case HMRC requests them 

• Set reminders for the deadlines for VAT returns, Corporation Tax, and annual accounts 

• Mixing personal and business finances by using the same bank account 

• Claiming personal costs (holidays, clothes, streaming services) as business expenses 

• Forgetting to claim legitimate deductions such as home office expenses or pension contributions 

• Poor record-keeping – losing receipts or failing to log expenses 

• Misclassifying training or entertainment costs 

• Not setting aside enough for tax obligations, leading to cash flow problems 

Getting into a good routine of logging expenses weekly or monthly prevents mistakes, missed claims, and last-minute stress at year-end. 

Running a limited company can be complex, but you don’t have to figure it out alone. Working with a specialist accountant ensures you utilise every allowable deduction while staying fully compliant. Speak to your SG Client Director today for tailored advice on business expenses and tax planning, and if you’re not yet an SG client, get in touch to find out more.