What expenses can you claim as a Limited Company?

In this post, we will delve into what types of expenditure are considered allowable if you trade as a limited company and hopefully bring you a step closer to being comfortable with keeping on top of your expenses. Though we have already explained in our previous blog post how best to keep track of all the expenses that your business may incur, this is only part of the puzzle! Understanding how different types of business expenditure impact your business plays a vital role in allowing you to make better business decisions and importantly, pay the right amount of tax. This post, understandably, is a long one as there is so much to cover and so without further ado let’s give you some insight!

Key Principles

Although there are many different rules when it comes to claiming expenses for your limited companies, the following are key to remember:

·         In general, HMRC only allows expenses which are ‘wholly, exclusively and necessary’ for the running of the company to be claimed against profit.

·         This also means that if an expense has a dual purpose for both your limited company and you personally, the ‘personal’ portion of the expense cannot be claimed. If it is not feasible to separate out the business portion, the expense as a whole cannot be offset against profit, or in others words is ‘disallowed’.

·         You can pay for company expenses from your personal bank account, and subsequently reclaim these from the company. However, please note that this is not best practice – we always recommend having at least one separate bank account for your business.

·         Should your company have employees that incur expenses on the company’s behalf (for example, travel or subsistence costs), you can simply reimburse them. We would recommend that the employee completes an ‘expense claim form’ so that you can easily keep a record of all payments, and of course you need to ensure that they supply you with the corresponding receipt.

·         Even though business expenses can be deducted against company profits, HMRC treat certain expenses as having a ‘taxable benefits-in-kind’ to the employee (which in the case of an owner-managed business, would normally also be the director). This will mean that the company will have to pay additional employer’s National Insurance Contributions (NIC), and there will also be more personal income tax for the individual to pay.

·         Though legitimate business expenses are able be claimed within the company accounts which reduce business profitability, it does not necessarily mean that it is also eligible to be allowable for corporation tax relief! There are various expenses that are treated differently in this regard, and it is worth discussing these with an experienced professional to help you navigate this area of company tax.

·         Not all expenses can be claimed against your business profit – depending on various factors such as the industry you are in and your trading status, only certain expenses are considered ‘allowable’ by HMRC to be offset against your income. Again, speaking to a professional experienced within your industry is incredibly important as will allow them to share their insight and experience with you

Expenses you can claim when trading as a Limited Company

Below we have outlined a varied list of ‘typical’ expenses that your company may incur on an annual basis, but it is worth stressing that it is in no way comprehensive as each business is completely different! Though the below should give you a good starting point as to what expenses you may anticipate incurring (and importantly, how to treat them!), it is in nearly all cases much more appropriate to seek professional guidance if you are running your own limited company due to the sheer level of involvement required to trade efficiently.

Working from home

If you work from a workspace or office dedicated to the business which is separate from your home, most of the running costs of this can be considered allowable expenses. Examples include:

·         Rent

·         Business rates

·         Utilities (heating, lighting and water)

·         Phone line and broadband Internet

·         Office supplies, such as stationery, printing costs and postage

·         Repairs, maintenance and security costs in relation to your workspace

If, however, you work out of your home, we’d recommend that you check out our previous blog post that outlines potential options available to limited companies.

Equipment

The term ‘equipment’ will mean something different to everyone depending on the industry in which they operate, and so it is easier to simply state that if your business needs to purchase equipment/tools in order to carry on it’s trade, the cost of this purchase is tax deductible and so should be paid through your business account.

Car, van and travel expenses

If it is a personal vehicle

When using personal vehicles (including cars, motorbikes or bicycles) for business purposes, you can claim expenses at a flat rate per mile set by HMRC. For cars, this is 45p for the first 10,000 miles and 25p for every mile after; whereas for motorbikes and bicycles the approved rates are 24p and 20p respectively.

The mileage claims that you will make in relation to business trips effectively cover the running and maintenance costs of your personal vehicles, such as fuel, servicing, repairs and insurance. As you may therefore expect, personal vehicle costs cannot be claimed as a company expense- it will be solely the mileage claims that are included as an expense within your company accounts.

If it is a company vehicle

If you either own or lease a car held in the company’s name, HMRC allow you to claim a reduced rate which covers fuel. These rates change on a quarterly basis and are based on the engine size of the vehicle, and so we’d recommend checking HMRC’s specific site as and when needed to get the latest applicable rates. Though there is a reduced mileage rate for company vehicles, all associated vehicle costs can be claimed as a company expense and receive corporation tax relief. Though this sounds attractive, if there is any element of personal use on the vehicle it would be treated as a taxable benefit and would have both company and personal tax implications.

Owning/leasing a company vehicle as opposed to using your own one can be a highly tax efficient way of operating, but it’s worth noting that there are a huge number of factors to consider and will typically heavily rely on the vehicles’ eco-credentials. We would strongly recommend that you seek professional advice on this before jumping into a decision.

Travel expenses

Most expenses incurred when travelling for business purposes can be claimed. These include:

·         Parking

·         Toll fees and congestion charges

·         Hotel accommodation (within reason)

·         Subsistence expenses when travelling for business, or during overnight work trips

·         Public transport costs, such as train, taxi fares and flights

However, the following are not considered allowable expenses:

·         Travel costs incurred for personal purposes

·         Speeding or parking fines

·         Travel costs of ordinary commuting i.e. between home and a permanent workplace

Clothing

In most cases, clothes purchased for everyday use is not an allowable expense, even if you wear these for work. However, there are exceptions where clothing costs can be deducted against company profit:

·         Protective/specialist clothing required for work

·         Uniform that can only be work for work purpose, such as clothing items with the company logo on

·         Costumes for actors or entertainers

Employee expenses

As a company director it is highly likely that at least some element of your ‘income’ from your company is a salary, and so you’ll be pleased to know that this (as well as any associated employers’ NIC) are classified as a tax deductible expense. This same rule also applies should you have any other employees within the company. Other employment-related expenses would include:

·         Pension contributions

·         Bonuses

·         Costs paid to sub-contractors

·         Training courses and related costs (such as study materials) incurred wholly for business purposes

·         Staff healthcare, such as medical insurance, annual health check-up or eye test. It should be noted though that in some cases, such expenses will be treated as taxable benefits to the employees.

Gifts, entertainment and donations

Though entertaining potential or current customers can clearly be justified as a business expense, due to the nature of the expense itself HMRC will not allow it to qualify for tax relief. It is still, however, in your best interest to ensure that these costs are paid through your business account. If you’d like to discuss in more detail as to why this is important please simply get in touch.

Gifts, on the whole, also fall into this strange category of business related but not tax deductible. There are a few exceptions to this rule though:

·         Employee entertaining costs – these must be incurred for an annual event (e.g. Christmas party) which are open to all employees, and cost per employee must not exceed £150

·         Gifts which include conspicuous advertisement for the company

·         Trivial benefits to directors – subject to a maximum limit of £300 per tax year, these are allowable if each item costs £50 or less. They cannot be cash or voucher, and must not relate to work performance or be in the terms of employment contracts.

On the other hand, charitable donations made in the company’s name are allowable if they are made to national charities. Donations made in personal names cannot be used to offset against company profit; however, these will carry tax relief for your personal income tax and so should be paid personally.

Mobile phones

If the mobile phone contract is in the company’s name, all costs associated with the mobile contract can be claimed by the company against profit. However, if you are also able to have personal use of the phone, this would trigger the benefit-in-kind treatment discussed above, resulting in additional tax for the company and you as an individual.

Research

In line with the general guidelines, research conducted for business purposes can be claimed as a business expense and receive corporation tax relief. This type of expense is of course highly dependent on the industry in which you operate; if you work within the media industry you will be able to claim research costs that an IT consultant likely would not be able to.

Professional, legal and financial costs

Most professional and legal costs incurred by the company for business purposes are considered allowable expenses. Example of this include::

·         Accountancy fees

·         Legal costs (though this depends on why the cost has been incurred- this should be discussed with an accountant)

·         Advertising and marketing costs

·         Insurance policies taken out for business purposes, such as public liability or professional indemnity policies

·         Subscriptions to trade bodies and memberships to professional organisations related to your business

·         Bank, credit card and other financial charges, including interest on bank loans and hire purchase interest

·         Agency fees

We hope though that for now, this has helped you in some way gain a better understanding of the different types of expenses your company may find itself incurring, and how they can and should be treated. As mentioned at the start of our post, every company is different and so expect to encounter other business expenditure over the course of running your business that we have not touched on above. In the vast majority of cases, it is highly advisable to get in touch with an accountant who understands and cares about your business that can help you navigate through the increasingly complicated and involved waters of limited companies, and so please do give us a shout if you want to talk through any aspect of our post.