Allowable expenses for limited companies: what you can and can’t claim
Running a limited company comes with its own set of financial intricacies, especially when it comes to claiming expenses. Knowing what your company can claim can significantly impact your bottom line by reducing your taxable profit and, consequently, your Corporation Tax. Kudos Accounting is here to guide you through the maze of allowable expenses.
Fundamental rules for claiming expenses
To ensure you stay compliant with HMRC and maximise your tax efficiency, adhere to these fundamental rules:
- Business Exclusivity: Only claim expenses incurred wholly and exclusively for business purposes.
- No Dual Purpose: Avoid claiming expenses with both business and personal use. For instance, if you extend a business trip for leisure, you can only claim the business portion.
- Record Keeping: Maintain accurate records and VAT receipts to justify your claims.
- Pre-Formation Costs: Keep track of pre-formation and running costs, as these can often be claimed.
How to claim expenses
Expenses can be paid directly from your company’s bank account or reimbursed if paid out of pocket. Implement a company expense form and policy to streamline the process for you and your employees. Encourage staff to retain receipts and submit expense forms monthly.
Record keeping
Effective record-keeping is crucial. Keep both physical and digital copies of all receipts, and consider using an expenses spreadsheet to stay organised throughout the year.
Allowable expenses you can claim
Health and eye test expenses
If your employees spend significant time on computers, eye tests and health checks can be claimed. Prescription glasses or contact lenses are also allowable if used strictly for work.
Business insurance
All business insurance policies used solely for business purposes, such as public liability, employer’s liability, professional indemnity, and contents insurance, are claimable.
Advertising, marketing, and PR
Expenses for advertising, marketing, and PR activities are allowable if they serve business purposes.
Accommodation and travel
Accommodation costs for business trips are claimable, including food and drink. Travel expenses, including mileage, parking, tolls, and public transport, are also allowable.
Bank charges
Fees charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Home office
If you run your business from home, a portion of your household costs and utility bills can be claimed. This can be calculated as a flat rate or based on the specific use of your home for business purposes.
Gifts and entertainment
Gifts for employees are tax-free if they meet certain criteria, including being less than £50 in value and not cash or vouchers. Business entertainment costs are generally not allowable, except in specific circumstances.
Professional subscriptions
Subscriptions to industry-specific magazines, journals, and books are allowable if they relate directly to your business.
Phone and internet bills
Work phone contracts and broadband payments can be claimed if used solely for business. For personal contracts, only the business portion is claimable.
Equipment and office supplies
Necessary equipment such as computers, software, and office furniture can be claimed if used mainly for business purposes.
Professional development
Training courses relevant to your business can be claimed as long as they directly contribute to your professional development.
Employee salaries and pensions
Director’s salaries and corresponding National Insurance Contributions (NIC) are allowable expenses. Pension contributions are also claimable with tax relief, up to the annual limit.
Staying efficient
Navigating allowable expenses can be complex, but staying informed can save your business significant amounts in taxes. Remember the golden rule: expenses must be wholly, exclusively, and necessarily incurred for the running of your business.
For personalised advice and to ensure your claims are above board, consider consulting with an accountant. Kudos Accounting is here to help you every step of the way.
If you have any questions or need further assistance, feel free to contact us at Kudos Accounting.