One advantage of running a limited company is the opportunity to claim. Business expenses and reduce taxable profits, ultimately lowering tax liabilities. However, it’s crucial to understand which costs can be claimed to ensure compliance with tax regulations. This guide outlines what a limited company can claim as allowable expenses, providing clarity for small business owners and financial managers.
1. Office Costs
a. Rent and Utilities
If your business operates from rented office space, rent, electricity, heating, water, and internet costs are fully deductible as expenses. These expenses must be solely for running the business.
b. Home Office Costs
If you run your company and work from home, you can deduct a portion of your household expenses, including electricity. Internet, and heating. The amount must reflect the workspace used and the time spent working in the home office.
c. Equipment and Furniture
Purchases like computers, printers, desks, and chairs used exclusively for business purposes are claimable. These items often fall under capital allowances, so that you can deduct their cost over several years.
2. Travel and Transportation
a. Business Travel
You can claim travel expenses for work-related trips, such as visiting clients, meetings, or conferences. This includes:
- Train, bus, or taxi fares
- Flights
- Hotel accommodation (but only for business purposes)
b. Business Mileage
Using your car for business travel, you can claim mileage at a standard rate (e.g., 45p per mile for the first 10,000 miles in the UK). Note that commuting to your regular place of work isn’t claimable.
c. Company Vehicles
A company can claim costs associated with a vehicle owned by the business, including fuel, repairs, insurance, and road tax. However, personal use of company vehicles must be carefully recorded and may attract additional taxes.
3. Employee Costs
a. Salaries and Wages
You can pay yourself and your employees a salary, which is an allowable expense for the company. Ensure payslips and taxes are handled through the correct payroll processes such as PAYE.
b. Pensions
Employer contributions to staff pensions, including your own if you’re a director, are tax-deductible.
c. Employee Benefits
Any approved employee benefits, such as health insurance, training, or childcare vouchers, can also be claimed as a business expense.
d. Subcontractor Costs
If you hire subcontractors or freelancers to assist with specific tasks, their payments are deductible. Ensure you record the invoices and contracts associated with these services.
4. Marketing and Advertising
Promoting your business is crucial, and the associated costs are fully deductible. This includes:
- Website development and hosting fees
- Printed materials like business cards or brochures
- Social media advertising or pay-per-click campaigns
- Sponsorships related to your business
Marketing expenses must relate directly to promoting the company’s products or services, not personal interests.
5. Professional Fees
a. Accountancy and Legal Fees
The cost of hiring an accountant to manage your books, file taxes, or offer financial advice is deductible. Similarly, you can claim Legal fees related to business activities, such as preparing contracts or resolving disputes.
b. Software Subscriptions
Business-related subscriptions to tools like accounting software, project management platforms, or cloud storage services are claimable.
c. Memberships and Professional Bodies
If your company requires membership in a professional organization, the associated fees can be claimed. For example, a membership to a professional association related to your industry.
6. Insurance
Limited companies can claim insurance premiums for policies critical to the business, such as:
- Public liability insurance
- Employer’s liability insurance (a legal requirement in most cases)
- Professional indemnity insurance
- Business property insurance
These costs ensure that your business is protected and reduce your taxable profits.
7. Training and Development
Training courses to improve skills relevant to running or growing the business are tax-deductible. For example:
- Workshops on industry-specific skills
- Business management courses
- Software-specific training (e.g., learning to use accounting platforms)
Personal development courses that do not apply directly to the business may not be allowable.
8. Stock and Materials
Products or raw materials purchased exclusively for business purposes can be claimed. This includes:
- Inventory for resale
- Packing materials
- Tools or machinery necessary for production
Ensure you keep detailed records of purchases and any associated costs.
9. Banking and Financial Costs
a. Bank Charges
If you maintain a business bank account, you can deduct monthly service or transaction fees.
b. Interest on Loans
Interest paid on business loans or overdraft facilities for running the company is also deductible. However, this is limited to finance used exclusively for business purposes.
10. Entertainment
Expenses for entertaining clients or suppliers, such as meals or corporate events, are partially deductible but often come with strict rules. Note that the cost of entertaining staff, such as at an annual holiday party, is allowable within specific limits (e.g., £150 per employee per year in the UK).
11. Miscellaneous Business Costs
Other expenses that are essential to running the company may also include:
- Stationery and office supplies like pens, notebooks, or ink cartridges.
- Postage costs for sending documents or products.
- Uniforms or protective clothing specific to your industry.
Documentation Is Key
When claiming expenses, it’s vital to maintain clear and accurate records. Keep all receipts, invoices, and bank statements to substantiate your claims. Expenses must be “wholly and exclusively” for business purposes to qualify, and documentation helps during an audit or tax filing.
Final Thoughts
Understanding what a limited company can claim as expenses is essential for effective financial management and reducing tax liabilities. By taking advantage of allowable costs and keeping detailed records, you can ensure compliance while optimizing your company’s cash flow. Always seek professional advice for tailored guidance, as rules vary by jurisdiction and business structure.
