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Business Expenses You Can Claim as a Limited Company

It is very important to be aware of all the Business Expenses you can claim as a Limited Company Director. This is to empower you to run your business in the most tax-efficient way possible.

One way to achieve this is to claim for allowable business expenses correctly so that you don’t wind up having to pay more tax than you are legally obliged to.  There are often business expenses that go unclaimed, which means you could end up paying more tax than you need to. We’ve put together this article to help you make the most of the tax relief available to you.

Do check out our resource on Limited Company tax topics for more information at https://libabunaccountancy.com/blog/

 What are allowable Business Expenses in a Limited Company?

Remember: the general rule is that business expenses must be “wholly, exclusively and necessary” for business purposes. However, HMRC rules can be complex and are often based on concepts such as the ‘fairness’ and ‘reasonableness’ of business expenses claimed. There may also be an impact on the amount of personal tax you pay.

LIMITED COMPANY BUSINESS EXPENSES

Here are some of the main types of HMRC approved business expenses you can claim as a limited company for tax purposes:

Accommodation costs and expenses whilst on business travel

You can claim expenses for accommodation costs when you travel to a temporary workspace or location for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question any excessive claims for expensive hotels or apartments w

ith more than one bedroom

 

Advertising, marketing, and PR

Generating leads and advertising is an important part of running a successful business. You need to make sure that your potential customers know about your products or services, which is where advertising, marketing, and PR comes in.

This may be a one-off cost or an ongoing charge and as long as the service is exclusively for your business then the cost could be classed as an expense.

 

Bad debts As A Business Expense

To claim bad debts as a business expense, the value of the transaction needs to be included in your company’s turnover, and you must be sure that the debts will not be recovered from your customer

 

Bank, credit card and other financial charges

Many types of bank charges can be claimed as an allowable business expense,  though they must be for accounts or cards in the name of the business. You can claim business costs for:

  • Bank, overdraft and credit card charges
  • the interest on business and bank loans (but not repayments of the capital or loan amount )
  • hire purchase interest
  • leasing payments
  • alternative finance payments, for example, Islamic finance.

You cannot claim for repayments of personal loans, overdrafts or finance arrangements.

Business Insurance 

You can claim insurance policy costs, as long as you can prove that the policy is taken up strictly for business purposes.

Common types of business insurance include professional indemnity insurance, public liability insurance, employer’s liability insurance and business contents insurance. 

Business Mileage

As a limited company director, you can claim back mileage from HMRC if you use your personal vehicle for business trips, and you’ve paid for the costs of fuel.

According to HMRC, these trips are defined as journeys you make ‘wholly and exclusively’ for business purposes. These include:

  • Trips taken to complete work (i.e deliveries)
  • Trips between two workplaces for the same job
  • Going from an employee’s home to a client
  • Going to a temporary workplace

You can claim the following rates:

Vehicle

Rate Per Mile (On first 10,000 miles in tax year)

Rate Per Mile (On each mile over 10,000 miles)

Cars and vans

45p

25p

Motorbikes

24p

24p

Bicycle

20p

20p

*electric car owners currently get the same mileage rates

The great thing about this is that not only does the business expense reduce your overall Corporation Tax bill, it also means you can reimburse yourself the amount claimed.

If your company owns the car, however, you can only claim the cost of fuel.HMRC Advisory Fuel Rates are the recommended amounts when you are reclaiming the fuel element on business mileage in a company car.  HMRC reviews these rates every quarter.

From 1st September 2020, the Advisory Fuel rates are:

Engine size

Petrol

Diesel

LPG

Electric*

1,400cc or less

10p

 

7p

4p

1,600cc or less

 

8p

 

4p

1,401cc – 2,000cc

12p

 

8p

4p

1,601cc to 2,000.cc

 

10p

 

4p

Over 2,000cc.

17p

12p

12p

4p

*Fully electric cars only. Hybrid cars claim at the petrol or diesel rate. Electricity is not classed as a fuel for car fuel benefit purposes.

 

Business Travel Expenses

In general, you can claim for travel-related expenses as long as the trip is made wholly and exclusively for business purposes, and isn’t considered ‘ordinary commuting’.

According to HMRC, a commute is defined as a trip that you make between your home and a permanent workplace.

You can claim for the following:

  • Costs associated with running a car or vehicle, such as fuel expenses, parking fees, tolls, vehicle insurance and vehicle repairs and servicing
  • Transport fares for flights, as well as rides taken via train, bus, taxi and ferries
  • Meals and accommodation for overnight business trips

Childcare costs and expenses

HMRC does not allow childcare as a legitimate business expense, however, employees themselves (including limited company directors) can claim tax relief through their salary payments up to a certain amount each month with one of two approved schemes

Childcare Voucher scheme

As of 4th October 2018, the Childcare Voucher scheme has been phased out by the government, so new applicants are no longer accepted. If you’ve set up for this scheme, you can go on receiving and using the vouchers as long as the scheme continues to run.

Tax-Free Childcare scheme

Parents can now apply to the Tax-Free Childcare scheme. This initiative was rolled out in 2017, and was designed to replace employer-supported childcare gradually.   Under the scheme, the government will contribute 20p for every 80p you pay, up to a threshold of £2000. The means that you’ll receive £2000 per year for each child, for childcare costs of up to £10,000. Further information is available on the Gov.uk website.

Please note that your limited company cannot provide an employee with childcare using both schemes at the same time, it’s one or the other.

Christmas party and Staff Event Expenses

Your company can host an annual event – most commonly a Christmas party – as a tax-free benefit, providing you meet certain conditions.

Your employees may invite a partner but you must not exceed an expenditure of £150 per head (including VAT). The event must cater mostly for staff. For example, expenses for one director and a plus one would be acceptable and would give you a budget of £300.

However, if those attending are not mostly employees then it would be difficult to argue the event’s main purpose is to entertain staff. Note that the £150 amount is an annual limit and can cover multiple events for staff.

Costs of forming your company

The costs that you incur for setting up your company can be claimed as allowable expenses. These costs can range from fees for professional services, to printing costs, equipment purchases and software expenses

Donations

While donations aren’t considered allowable business expenses, they are deductible against your Corporation Tax bill.

This applies when you gift the following to a charity:

  • Money
  • equipment or trading stock (items that your business makes or sells)
  • land, property or shares in another company (shares in your own company don’t qualify)
  • employees (on secondment)
  • sponsorship payments

Entertainment expenses

With certain, limited exceptions, expenditure on business entertainment or gifts is not allowable as a deduction against profits, even if it is a genuine expense of your trade or business. Tax relief is therefore not available.

If you’ve incurred the cost of business entertaining personally you may be able to claim the expense as being incurred in the performance of your duties as a director. These costs would be disallowed in the company profits, so the net effect would be the same as not claiming the expenses in the first place.

Equipment expenses for your limited company

The cost of anything that’s necessary and essential for your duties as a director will receive tax relief. This covers computer equipment, printers, and software. You may also claim reasonable relief towards the cost of equipping/furnishing an office, e.g. chairs, bookcases and so on. This may appear to hold a dual purpose, but it’s allowed because it is a consequence of a business need. As long as the personal use is insignificant it will not be treated as a ‘benefit in kind’ and you won’t have to pay personal tax on it. 

Eye tests and glasses or spectacles

You can claim for vision tests providing it’s necessary for the initial or continued use of visual display equipment in your duties. However, you aren’t able to claim for glasses or contact lenses unless they’re prescribed during your time at work, specifically for ‘monitor or screen work’.

Fixed assets and disposals of fixed assets

As long as they’re entirely purchased for business use, items such as laptops, PCs, business phones and furniture can be recorded as a business fixed asset. If the asset is obsolete or no longer used by your business, you may decide to dispose of it.

General office costs and purchases

Minor purchases with receipts that are used wholly, exclusively and necessarily in the performance of your duties are claimable. This includes postage, computer consumables, and office stationery.

Whether you continue to use a fixed asset, sell old models or scrap them, HMRC will need to know in order to ensure it’s  correctly accounted for each year.

Gifts and trivial benefits

You don’t have to pay tax on a gift or benefit for your employee if all of the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract.

This is known as a ‘trivial benefit’.  You don’t need to pay tax or National Insurance or let HMRC know. You have to pay tax on any gifts or benefits that don’t meet all these criteria.

Medical insurance (Healthcare) expenses

Your company may provide financial support towards medical insurance for employees. This is regarded as a ‘benefit in kind’ and the employee must pay personal tax on it. Your company will be liable to National Insurance Contributions at 13.8% ( for the 2020/21 and 2019/20 tax years).

Your company can provide the following and claim tax relief:

  • medical insurance for an employee working abroad
  • annual check-up 
 

Mobile, Phone, Landline Business Expenses

If your landline phone contract is only for business use, this is an allowable company expense and you won’t be taxed personally. By having a separate phone line for ‘only business’, it shows this is 100% for business.

For mobile phones, provided the contract is between the company and the mobile phone provider, the company can claim all costs as an allowable expense.

If you make a claim for business only calls made on your personal mobile or landline phone bill, this is an allowable expense provided you can prove it was a business call. You can also reclaim the VAT element of the business calls (if you‘re VAT registered), but you won’t be able to reclaim any part of the line rental, as you would incur this cost anyway.

It’s increasingly difficult to separate the cost of business calls, given the way mobile (and many landline) phone operators package call costs (e.g. ‘up to 2,000 free monthly minutes’). If you can’t separate the business element from your personal use of your mobile phone, you cannot make a claim, due to the duality of purpose rules, as any business calls you make incur no extra cost on top of the tariff you already pay for personal calls

Broadband

If you start to carry out some of your work from home, using your residential broadband, you cannot make a claim if the broadband was already in place, unless you can clearly split the business from the personal element. Having two broadband lines could show one line is 100% for business.

If you have no broadband contract at home and need internet access to carry out your business, the costs can be reclaimed from your company, and no ‘benefit in kind’ charge arises.

Pension payments

Once your company has set up a contract with a pension provider it can make payments into your pension and receive 100% tax relief as an allowable business expense. In the 2020/21 and 2019/20 tax years there’s a limit of £40,000 on how much you can contribute free of tax to a pension scheme either through your company or personally.

Professional fees

The costs incurred for engaging professional services—such as hiring an accountant, lawyer or architect—can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.

Professional Subscriptions

Professional subscriptions such as membership of a trade body, or registrations needed in order to enable you to trade are allowable, provided they are  HMRC approved professional bodieswhich are relevant to your employment. If it is not directly relevant, then it’s not allowed. Membership of your local golf club is not going to be allowed no matter how much you think it may help your business

Salaries

A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance Contributions (NICs).

You may pay a tax-efficient salary up to the relevant National Insurance threshold, i.e. before you become liable to start paying NICs. You’ll be more tax-efficient by paying a lower monthly salary, because after you cross the relevant NI threshold you’ll have to begin paying NICs.

For more information on tax-efficient salary levels see our  “How to Pay Yourself as a Director of a Limited Liability Company  “article.

Training expenses

You can claim for training courses that are aimed at improving the skills you apply in your work. Additionally, you can claim travel and accommodation while attending a training course.

HMRC often disallow expenses for courses such as MBAs, as they offer new skills and knowledge rather than building on existing skills. In certain situations, they are allowed, but only if you demonstrate that they are reinforcing/improving your existing knowledge/skills

Use of your home as an office

Working through a limited company means if you work from home, from April 2020, HMRC allows you to claim £6 each week without keeping any detailed records – this equates to £312 per year (this increased from £4 a week or £208 per year in the previous tax year). The other good news is that HMRC doesn’t believe this to be a benefit in kind, which means you won’t have any tax to pay on this through your Self Assessment.

As always, there are rules: you must be able to prove that you regularly spend time doing your job in this office space, so you can’t just use your home office for a small bit of administration while the majority of your work is done on-site or at client offices.

Equipment that is necessary and essential for your professional duties will receive tax relief. You may also claim reasonable relief towards the cost of equipping/furnishing an office, (for example chairs or bookcases)

If you need help in identifying expenses you can claim as a limited Company , please give us a call on +44 01234 712840.

Now that you are aware of the range of expenses you can claim during the year, check out another of our blogs on  ‘Year End Accounts Checklist For Limited Companies’ 

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