Running a limited company can involve a wide range of costs, but not everything paid from the company bank account automatically reduces its Corporation Tax bill.
It is also important to remember that a limited company is legally separate from its directors and shareholders.
This means there can sometimes be two separate questions:
- Can the company obtain Corporation Tax relief for the expense?
- Does providing or paying for it create a tax or benefit-in-kind consequence for the director or employee?
This is one of the important differences between operating through a limited company and being a sole trader.
If you operate as a sole trader instead, see our guide to allowable business expenses for sole traders.
What makes an expense allowable for a limited company?
Broadly, revenue expenditure incurred for the purposes of the company’s trade can potentially be deducted when calculating taxable profits, unless a specific tax rule disallows it.
However, the treatment depends on what the company has paid for and why.
Some expenditure may be:
- Deductible as an ordinary business expense
- Dealt with under the capital allowances rules instead
- Specifically disallowed for Corporation Tax
- Taxable on the director or employee as a benefit
- Partly business and partly personal
- Subject to separate VAT rules
This is why paying something from the company bank account does not, by itself, make it tax deductible.
Important
An expense being paid by the company and an expense reducing the company’s Corporation Tax bill are not necessarily the same thing. Some costs can be genuine company expenditure but still be disallowed when calculating taxable profit.
Office costs, software and subscriptions
Normal costs of running the business can potentially qualify for Corporation Tax relief where the relevant conditions are met.
Examples can include:
- Accountancy and bookkeeping software
- Other business software and subscriptions
- Stationery
- Printing and postage
- Website and hosting costs
- Office rent
- Business insurance
- Telephone and internet costs relating to the business
- Professional costs relating to the company’s trade
The treatment of some costs can be more complicated where they relate to acquiring an asset, changing the capital structure of the company or another capital transaction.
What if I pay a company expense personally?
Directors of small companies often pay business costs personally, particularly when the company is new or where using the company card is inconvenient.
Where a director personally pays a genuine company expense, the company can generally reimburse the director where the expense is properly recorded and the relevant tax conditions are satisfied.
For example, a director might personally pay for:
- Business postage
- A software subscription
- Qualifying business travel
- Office supplies
- Other genuine company costs
The bookkeeping should clearly record what the payment relates to and retain appropriate supporting evidence.
Depending on how the transaction is dealt with, amounts paid personally on behalf of the company can also interact with the director’s loan account.
For more on taking money from your company, read How Should I Pay Myself from My Limited Company?.
Can my limited company pay me for working from home?
Potentially, but the rules are different from the simplified-expense rules available to eligible sole traders.
Where a director or employee regularly works from home under qualifying homeworking arrangements, the company can potentially reimburse reasonable additional household costs without creating an Income Tax or National Insurance charge.
HMRC currently allows an employer to use a guideline rate of:
- £6 per week, or
- £26 per month for monthly paid employees
without having to justify the amount of the additional household expenditure, provided the conditions for the homeworking exemption are met.
A higher amount may potentially be paid tax-free where the actual qualifying additional costs can be supported.
Only additional household costs attributable to the homeworking arrangements should be considered. Ordinary household costs such as the full mortgage payment or rent cannot simply be claimed.
Important
From 6 April 2026, an employee or director can no longer claim an Income Tax deduction personally for unreimbursed additional household expenses of working from home. This does not remove the separate exemption that can apply where an employer reimburses qualifying additional homeworking costs.
The sole trader rules are different. Eligible sole traders may instead be able to use HMRC’s simplified expenses for working from home.
Can I claim mileage through my limited company?
If a director or employee uses their own vehicle for qualifying business journeys, the company can potentially pay mileage allowance.
For the 2026/27 tax year, HMRC’s approved mileage rates for cars and vans are:
- 55p per business mile for the first 10,000 business miles
- 25p per business mile after the first 10,000
For motorcycles the approved rate is 24p per business mile.
For bicycles the approved rate is 20p per business mile.
These rates apply to qualifying business mileage in a personally owned vehicle.
Important
Ordinary commuting between home and a permanent workplace is not normally qualifying business mileage. The travel rules need to be considered when deciding whether a particular journey qualifies.
Do not confuse these mileage allowance rates with the rules for a company-owned car. Company cars have separate Corporation Tax, capital allowance, VAT and benefit-in-kind considerations.
Can my limited company pay for my mobile phone?
Potentially.
Where the company provides one mobile phone to a director or employee, the provision of the phone can generally be exempt from a benefit-in-kind charge. The exemption can cover the handset, line rental and private calls paid for by the employer.
The position is different where the mobile phone contract is personally held by the director and the company simply pays or reimburses the director’s personal bill.
For owner-managed companies, it can therefore be important to consider who actually has the contract with the network provider rather than simply who pays the bill.
What about computers and other equipment?
A company may purchase equipment genuinely required for its business, such as:
- Computers
- Monitors
- Printers
- Office furniture
- Other business equipment
Depending on the asset and circumstances, tax relief may be given through the capital allowances rules rather than treating the full purchase as an ordinary revenue expense.
Where equipment is provided to a director or employee and there is significant private use, separate employment benefit rules may need to be considered.
Can the company pay for training?
Work-related training paid for or provided by an employer can qualify for an exemption from employment tax where the relevant conditions are satisfied.
The definition of work-related training is relatively broad and can include training designed to:
- Improve knowledge or skills useful in the person’s employment
- Reinforce existing skills
- Better qualify the person to perform their employment duties
The training needs to relate to the person’s current employment or a related employment.
This can differ from the rules applying to a sole trader paying for their own training.
Can I claim meals through my limited company?
Buying lunch during an ordinary working day does not automatically make the cost a business expense.
However, meals and subsistence can potentially qualify where they are attributable to qualifying business travel, such as certain journeys to temporary workplaces.
For example, necessary food and drink purchased while undertaking qualifying business travel may potentially fall within the travel and subsistence rules.
The exact treatment depends on the nature of the journey and the circumstances.
What about client entertaining?
A company can pay for entertaining clients or potential customers, but business entertaining is generally specifically disallowed when calculating taxable profits for Corporation Tax.
This is an important distinction.
The expenditure can still be recorded in the company’s accounts as business entertaining, but it will normally be added back when calculating taxable profit.
Important
“Disallowable” does not necessarily mean the company cannot pay for something. It means the expense does not reduce taxable profit when calculating the Corporation Tax liability.
VAT recovery on business entertaining is also restricted and has separate rules.
What about staff parties and entertaining?
The rules for entertaining employees can be different from client entertaining.
An annual party or similar annual function can potentially be exempt from a benefit-in-kind charge where:
- It is annual, such as a Christmas party or summer event
- It is available to employees generally, or employees generally at a particular location where relevant
- The cost falls within the relevant exemption
The current exemption is £150 per head, including VAT and relevant associated costs such as transport or accommodation provided for the event.
Important
The £150 figure is an exemption, not an allowance. If a particular event does not qualify for the exemption, you cannot simply deduct £150 from the cost and tax only the balance.
If more than one qualifying annual function is held, the exemption can cover functions whose combined cost falls within £150 per head.
For one-person or director-only companies, an event does not automatically qualify merely because it costs less than £150. The conditions around availability to employees must still be satisfied.
Can the company buy me clothes for work?
Ordinary clothing is not automatically tax-free simply because it is worn for work.
For example, buying an ordinary business suit for meetings does not generally become an allowable tax-free expense merely because it is only intended to be worn when working.
Different treatment can potentially apply to items such as:
- Protective clothing required for the work
- Genuine uniforms
- Other specialist clothing required by the employment
What about professional subscriptions?
The company can potentially pay or reimburse qualifying professional fees and subscriptions relating to the director’s or employee’s work.
The employment tax treatment can depend on whether the organisation appears on HMRC’s approved professional bodies list and whether the relevant conditions are met.
Can my company give gifts to clients?
Business gifts are generally treated similarly to business entertaining and are normally disallowed when calculating taxable profits.
There is, however, a limited exception for certain small advertising gifts.
Broadly, Corporation Tax relief may potentially be available where:
- The gift carries a conspicuous advertisement for the business
- It is not food, drink or tobacco
- It is not a token or voucher exchangeable for goods
- The total cost of relevant gifts to the same recipient does not exceed £50 during the company’s accounting period
Examples can include appropriately branded promotional items such as pens or diaries where the conditions are satisfied.
VAT has separate business-gift rules and should be considered separately where relevant.
What about company cars?
A limited company can buy or lease a car, but cars have their own tax rules.
Depending on the circumstances, these can involve:
- Capital allowances
- Corporation Tax deductions
- VAT restrictions
- Benefit-in-kind tax for the director or employee
- Employer’s National Insurance
- Fuel benefit rules
Whether buying a car personally or through the company is better depends heavily on the vehicle and circumstances.
Does an allowable expense mean HMRC gives me the money back?
No.
This is a common misunderstanding.
An allowable company expense generally reduces the profit on which Corporation Tax is calculated. It does not mean HMRC reimburses the full cost.
Example
If a company has £50,000 of taxable profit before considering a £1,000 expense, and the £1,000 is fully deductible, the expense would generally reduce the taxable profit to £49,000.
The Corporation Tax saving is therefore based on the tax treatment and applicable Corporation Tax rate. The company has not received the £1,000 purchase for free.
Keep evidence for company expenses
Good records are important.
Depending on the expense, records might include:
- Supplier invoices
- Receipts
- Mileage records
- Details of the business purpose
- Travel details
- Contracts
- Evidence of personally paid company expenditure
- Details of attendees at business or staff entertaining events
Keeping business and personal expenditure clearly separated also makes bookkeeping and year-end accounts significantly easier.
How can Baldwin’s Accountancy Services help?
We can help limited company owners understand how expenditure should be treated, identify costs that may qualify for tax relief and ensure expenses are recorded correctly in the company’s accounts.
Where an expense also has potential payroll, benefit-in-kind or VAT implications, we can help identify the additional treatment that may be required.
We can also provide ongoing bookkeeping, annual accounts and Corporation Tax services for owner-managed limited companies.