What expenses can my limited company claim?

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    Running a business inevitably incurs costs, whether that is everyday sundries, fuel for a business trip or larger investments in items like computers. A limited company is able to claim tax relief on business costs, but to stay on the right side of HMRC, it’s important to understand exactly what does and does not qualify as a tax-deductible expense.

    A limited company can deduct certain business expenses from its taxable income to reduce the company’s corporation tax liability. Allowable expenses are those “wholly and exclusively” incurred in the running of the business, such as bank fees, business travel and office supplies.

    It’s essential to record and claim tax-deductible expenses accurately to reduce your company profits before tax. If not, you may be missing out on hundreds or even thousands of pounds in unclaimed tax relief each year. Conversely, if you incorrectly claim tax on items for personal use, you could be subject to penalties from HMRC.

    To ensure you claim what your business is entitled to, read on for Jameco Group’s straightforward guide on expenses for limited companies. For more personalised advice, please feel free to get in touch.

    What are tax-deductible expenses?

    Tax-deductible expenses, or ‘allowable expenses, ‘ refer to the essential costs incurred in the course of doing business. A limited company can claim the cost of these expenses against its corporation tax payment, reducing the amount it has to pay tax.

    There are strict rules on which limited company expenses are and are not tax deductible. An allowable expense must be “wholly, exclusively, and necessarily” incurred in the running of the business. It’s crucial to maintain accurate records of all expenses in preparation for submitting the company tax return.

    How do you claim limited company expenses?

    The most straightforward approach is to pay for limited company business expenses directly from your company’s bank account. This method ensures that all transactions are for business purposes and simplifies accounting and tax filing processes.

    Business expenses paid by a limited company director or employees can be reimbursed in full (although a clear reimbursement policy is essential).

    When you file your corporation tax return, you must include the sum of all allowable business expenses incurred in that tax year. The total expenses are deducted from your profit before your tax bill is calculated.

    If you’re unsure whether an expense qualifies as allowable, it’s advisable to talk to your accountant to ensure you’re making the most of legitimate deductions within the bounds of tax law.

    Allowable business expenses that a limited company can claim

    Let’s take a look at typical allowable expenses you can claim to reduce your company’s tax bill. This list is not exhaustive, so it’s best to check with your accountant if you are unsure whether a business cost qualifies.

    Accommodation – Costs of overnight accommodation when travelling for business purposes, excluding long-term stays which may be considered as living expenses.

    Accountancy Fees – Costs of hiring accountants for business-related financial management and tax filing.

    Advertising and Marketing Costs – Expenses incurred in promoting your business, including advertising campaigns, website maintenance, marketing materials, and PR expenses.

    Bad Debts – Unrecoverable amounts that have been written off as not collectable from clients or customers.

    Bank Charges – Bank fees, including transaction fees and account maintenance charges.

    Business Insurance – Premiums paid for business insurance policies, such as public liability insurance, employer liability, tax investigation cover or professional indemnity insurance.

    Capital Allowances – Tax relief such as annual investment allowance on the purchase of assets used in your business including vehicles, machinery, or business equipment.

    Charitable Donations – Contributions made to registered charities through your business.

    Childcare Vouchers – The cost of childcare vouchers provided to employees as part of their remuneration package, subject to certain conditions and limits.

    Clothing – The cost of uniforms or protective clothing required for your business.

    Eye Tests – The cost of eye tests for employees using visual display units, if required by health and safety regulations.

    Gifts and Trivial Benefits – Certain business gifts and trivial benefits for employees or clients are subject to limits and conditions.

    Home Working – HMRC allows a flat rate of £6 per week (or £26 per month) for the tax year 2023/24 without the need to provide receipts or detailed calculations. If your additional costs are higher than the flat rate, you can claim for the actual amounts.

    However, this requires you to keep receipts and calculate the portion of your total bills that relate to your work.

    Legal Fees – Costs for legal services directly related to your business activities.

    Medical Insurance – Premiums for private medical insurance provided to employees are claimable but subject to a benefit-in-kind charge.

    Mobile Phone Contract – Phones that are provided to employees for the purpose of making business calls.

    Office Costs – Expenses related to maintaining a business premises, including rent, utilities, and office equipment.

    Office Supplies – For example, stationery, printing costs and postage for business correspondence.

    Patents and Trademarks – Fees associated with registering and maintaining patents and trademarks for your business’s intellectual property.

    Plant and Machinery – Expenditure on equipment used in your business, for which you may claim capital allowances such as the Annual Investment Allowance (AIA).

    Professional Fees – This includes professional support such as accountancy, legal and IT.

    Rentals – Costs for renting business equipment or vehicles.

    Salaries, Wages and National Insurance Contributions – Payments made to employees and the associated tax and National Insurance deductions.

    Software – Costs for software that is essential for business operations.

    Staff Party – Annual staff party expenses or similar events, subject to a per-head annual limit. These are typically once-per-year events such as Christmas parties and can’t exceed £150 per head. Most client entertainment expenses are not allowable.

    Subscriptions – Fees for industry-specific publications or professional body memberships relevant to your business operations.

    Telephone and Internet – Business-related phone bills and internet services.

    Training – Training courses for employees that enhance the skills required in their current roles.

    Travel – Business travel expenses such as train tickets, airfare, fuel and business mileage to and from a temporary workplace.

    What can’t you claim expenses on?

    As mentioned above, legitimate, tax-deductible limited company expenses must be wholly, exclusively, and necessary for business operations.

    And whilst overlooking legitimate business expenses could inadvertently lead to a higher corporation tax bill than necessary, claiming business expenses that aren’t allowed could land you in HMRC’s bad books.

    This includes personal expenses, penalties and fines, and business entertainment costs (i.e. entertaining clients).

    It can get tricky when it comes to costs incurred for mixed purposes, i.e. that serve both business and personal needs. For instance, if a business journey is extended for personal leisure, only the expenses related to the business portion of the trip are claimable.

    The costs for the additional personal days are not deductible. This distinction ensures that only genuine business expenses contribute to reducing your company’s taxable profit.

    If you are unsure what is or isn’t an allowable business expense, it’s always best to speak with an accountant.

    How do you pay corporation tax once expenses are deducted?

    Let’s assume you’ve done a great job of recording all allowable expenses, raised your sales on Xero, and are up to date with bookkeeping – what next?

    If you’re managing your accounts independently, it’s essential to calculate your company’s income and expenses accurately for tax purposes. Limited companies must report total income, expenses, and the resulting profit or loss in their statutory accounts and the CT600 form.

    Any adjustments, such as private use of company assets or depreciation, need to be reflected appropriately to ensure tax compliance. Once your tax calculation is complete, you’ll be able to settle your tax bill with HMRC.

    If you have an accountant, they can handle the preparation of your company’s accounts, ensuring they align with both accounting standards and tax legislation.

    A good accountant will highlight any allowable expense that has been missed (or those that have been incorrectly claimed), plus account for capital allowances. Great accountants, like Jameco Group, will have this wrapped up within a few months from year-end, allowing plenty of time to budget for the bill.

    Jameco Group is an experienced limited company accountant

    Jameco Group offers fully outsourced accounting and financial management services tailored for limited companies. Our expertise spans from preparing statutory year-end accounts and managing corporation tax obligations to optimising bookkeeping and ensuring payroll and VAT compliance.

    Beyond the essentials, we provide virtual FD services, management accounts, and tax advice to support your company’s profitability and growth. Our friendly and experienced team is committed to working with you to improve your company’s financial health and help it reach its full potential.

    Contact us today to ask us a question or arrange an initial consultation.

    FAQs about limited company expenses

    Can you deduct subscriptions as a business expense?

    Yes, subscriptions can generally be deducted as a business expense if they are relevant to your business, including industry-specific publications, professional journals, online resources, and software services. Professional membership fees to bodies that are necessary for your business or professional development are also allowable expenses.

    Is there a limit when it comes to claiming expenses?

    As a general rule of thumb, there isn’t a limit when claiming expenses for limited companies, providing the expenses claimed are incurred wholly, exclusively, and necessarily for the purposes of the business.

    Certain expenses have specific allowable limits or conditions set by tax authorities. For example, the Annual Investment Allowance (AIA) has a cap on the amount that can be claimed for qualifying capital expenditures in a year. Capital expenditures (on assets that will be used over several years) are treated differently from day-to-day running costs (revenue expenditure). Capital costs may not be fully deductible in the year of purchase but may qualify for capital allowances over time.

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