Limited Company Expenses: A Practical Guide to What You Can Claim
What Expenses Can a Limited Company Claim?
Understanding what expenses a limited company can claim is one of the most effective and entirely legitimate ways to reduce your Corporation Tax bill in the UK. Yet in practice, it remains one of the most misunderstood areas of company accounting.
Many company directors either fail to claim expenses they are fully entitled to, or they accidentally claim costs that HMRC does not allow. Both mistakes can be costly. Underclaiming means paying more tax than necessary, while incorrect claims can increase the risk of enquiries, penalties, or expenses being disallowed during a review.
This guide explains exactly what expenses a UK limited company can claim, how the rules work in real-world scenarios, and the most common mistakes directors make. It is written for 2026 and beyond, reflecting current HMRC expectations, recent compliance changes, and how expenses are treated by accountants in practice.
Throughout the article, we will also highlight practical tips, official guidance, and trusted resources so you can claim expenses confidently, accurately, and with the right supporting records in place.
Why Claiming Expenses Correctly Matters
- Lower Corporation Tax by deducting allowable business costs from your profits
- Stay compliant with HMRC rules and reduce enquiry risk
- Avoid penalties for careless or incorrect claims
- Improve cash flow by not overpaying tax unnecessarily
If you want to explore HMRC’s own guidance alongside this article, the following resources are particularly useful:
As a general rule, an expense must be wholly and exclusively for business purposes to be allowable. Where personal use is involved, special rules apply and this is one of the most common areas where directors go wrong. We will cover this in detail later in the guide.
Next, we will break down the core principle behind allowable expenses and how HMRC decides whether a cost qualifies or not.
What Is an Allowable Business Expense?
At the heart of every expense claim is a single rule set by HMRC. To be allowable for Corporation Tax purposes, an expense must be incurred wholly and exclusively for business purposes.
This principle is the foundation of all UK company expense rules, regardless of the type of cost, how often it occurs, or how small the amount may seem.
What “Wholly and Exclusively” Means in Practice
For an expense to meet HMRC’s test, the following must apply:
- The cost exists only because the business operates – If you would not have incurred the expense without running the company, it is more likely to be allowable.
- The expense is not personal in nature – Personal living costs, even if they help you work more comfortably, are not allowable business expenses.
- Mixed-use costs must be apportioned – Where an expense has both business and personal use, only the business-related portion can be claimed.
This rule applies to every expense category, including travel, equipment, home office costs, subscriptions, and professional fees. There are no automatic exemptions based on value or frequency.
Common Examples of How the Rule Is Applied
- A laptop used solely for company work is usually allowable in full
- A mobile phone used for both business and personal calls must be split on a reasonable basis
- Everyday clothing is not allowable, even if worn while working, because it is personal in nature
HMRC expands on this principle in its official manuals, which are often used during compliance checks and enquiries:
A key takeaway for directors is that intention matters. If an expense has a personal motive, even alongside a business benefit, HMRC may restrict or disallow it entirely.
Office, Premises and Workspace Expenses
If your limited company operates from rented or owned business premises, most day-to-day property and running costs are usually allowable for Corporation Tax purposes. As long as the premises are used solely for business, these expenses are typically deductible in full.
Under guidance from HMRC, the following office and premises costs are commonly allowable:
- Office rent or lease payments
- Business rates
- Electricity, gas and water
- Office cleaning and waste collection
- General maintenance and repairs
- Security costs such as alarms or monitored systems
These expenses are considered part of the normal cost of operating a business and are usually treated as revenue expenses, meaning they reduce your taxable profits in the accounting period they are incurred.
Important Points to Watch
- Business-only use is key – If the premises are used exclusively by the company, costs are generally allowable in full.
- Capital improvements are treated differently – Structural upgrades or major refurbishments may be classed as capital expenditure rather than day-to-day expenses. These are not deducted in the same way and may instead fall under capital allowances.
- Repairs vs improvements – Repairs that maintain the existing condition of the property are usually allowable. Improvements that enhance or extend the building often are not.
HMRC provides detailed clarification on property-related business costs in its internal manuals:
Good record-keeping is essential. Lease agreements, utility bills, and maintenance invoices should be retained to support your claims if HMRC ever reviews your accounts.
Working From Home as a Director
If you work from home as a company director, your limited company can still claim certain expenses related to using your home as a workspace. This is an area where claims are often misunderstood, and it is also one that HMRC pays close attention to during reviews.
There are two commonly accepted methods for claiming home working expenses through a limited company. The right approach depends on how your home is used and how much administration you are comfortable with.
1. Flat-Rate Home Office Allowance
This is the simplest option and is approved by HMRC. The company pays you a flat-rate amount to cover the additional household costs of working from home.
- Minimal calculations and record-keeping
- Low enquiry risk when applied correctly
- Suitable where home working is modest or irregular
HMRC currently accepts a flat-rate payment without detailed evidence of costs, provided it reflects genuine business use of the home. You can read the official guidance here:
2. Proportion of Actual Household Costs
This method allows you to claim a proportion of your real household expenses, based on:
- The number of rooms used for business
- The amount of time those rooms are used for work
Using this approach, your company may be able to claim a reasonable business proportion of:
- Heating and electricity
- Broadband and internet
- Council tax
- Mortgage interest or rent, limited strictly to the business portion
Key Compliance Considerations
- Claims must be reasonable – HMRC expects calculations to reflect realistic business use. Aggressive apportionments often attract scrutiny.
- Consistency matters – Changing methods frequently without justification can raise questions during an enquiry.
- Over-claiming is a common trigger – Home office expenses are one of the most frequent areas challenged by HMRC.
HMRC’s internal guidance on the use of home as an office provides useful context on how these claims are assessed:
As a practical tip, many directors start with the flat-rate method and move to actual cost apportionment only if home working forms a significant part of their business activity.
Salaries, Wages and Director Costs
A limited company can deduct a wide range of employment-related costs when calculating its Corporation Tax bill. These expenses are considered a core part of running a business and are fully allowable when structured correctly.
Under the rules set out by HMRC, a limited company can usually claim:
- Director salaries
- Employee wages
- Employer’s National Insurance contributions
- Workplace pension contributions
- Bonuses and commission payments
Director Salaries
Salaries paid to directors are allowable business expenses and reduce the company’s taxable profits. The salary must be:
- Actually paid through payroll
- Reported via PAYE and Real Time Information
- Reasonable for the work performed
In most owner-managed companies, directors use a combination of salary and dividends for tax efficiency. The salary element qualifies as an expense, while dividends do not.
Employer’s National Insurance and Pensions
Employer’s National Insurance contributions are fully allowable and often overlooked when directors think about deductible costs. The same applies to employer pension contributions made into a qualifying workplace pension scheme.
In many cases, employer pension contributions are one of the most tax-efficient ways to extract profits from a company, as they reduce Corporation Tax and are not treated as personal income for the director.
Official guidance on payroll-related deductions can be found here:
Bonuses and Commissions
Bonuses and commissions paid to directors or employees are allowable expenses, provided they are:
- Wholly for business purposes
- Properly documented and approved
- Processed through payroll with the correct tax and NIC applied
Dividends Are Not Allowable Expenses
It is crucial to understand that dividends are not business expenses. Dividends are paid from profits after Corporation Tax and cannot be deducted when calculating taxable profits.
Confusing salaries with dividends is one of the most common errors made by new directors and can lead to incorrect accounts and unexpected tax bills.
Travel and Subsistence Expenses
Travel and subsistence costs are among the most commonly claimed expenses for limited companies, and also one of the most frequently misunderstood. The key question applied by HMRC is whether the journey was undertaken wholly and exclusively for business purposes.
A useful practical test is this: would the journey have taken place if the business did not exist? If the answer is no, the cost is usually allowable.
Allowable Travel Costs
Your limited company can usually claim the following business-related travel and subsistence expenses:
- Business mileage using HMRC-approved mileage rates when using a personal vehicle
- Public transport costs including train, bus, taxi, and air fares for business journeys
- Hotel accommodation for overnight business trips
- Meals and subsistence while travelling or staying away from your normal place of work
HMRC’s current mileage rates are published here and should always be used to avoid incorrect claims:
Non-Allowable Travel Costs
Certain travel costs are specifically disallowed, even if some business activity takes place:
- Normal commuting between home and a permanent workplace
- Personal travel with no business purpose
- Travel costs for family members or companions
- Holidays, even where occasional work is carried out
For example, travelling to your regular office location is considered ordinary commuting and is not an allowable business expense. Likewise, extending a holiday for meetings does not automatically make the full trip claimable.
Subsistence and Meals
Meals can be claimed where they are incurred as part of qualifying business travel. This generally means:
- You are travelling to a temporary workplace
- You are required to stay overnight for business reasons
- The cost is reasonable and not excessive
HMRC’s internal manuals explain how travel and subsistence claims are assessed during reviews:
Keeping clear records is essential. Mileage logs, tickets, invoices, and hotel receipts should all be retained to support your claims.
Vehicles and Company Car Expenses
Vehicle expenses are an area where limited companies must choose the correct method of claiming from the outset. In most cases, a company can claim either mileage for a personal vehicle used for business or the actual running costs of a company-owned vehicle. You cannot mix the two for the same vehicle.
The approach you use will affect not only your Corporation Tax position, but also whether additional personal tax charges apply.
Using a Personal Vehicle for Business
If you use your own car or van for business journeys, your company can reimburse you using HMRC-approved mileage rates. This method is simple and involves minimal administration.
- Fuel, servicing, insurance, and repairs are all covered by the mileage rate
- No separate claims for individual running costs
- Clear mileage records must be kept
HMRC’s current mileage rates can be found here:
Once mileage is claimed for a vehicle, you cannot later switch to claiming actual running costs for that same vehicle.
Company-Owned Vehicles
If the company owns or leases the vehicle, it can usually claim the actual running costs instead of mileage. Allowable vehicle-related expenses may include:
- Fuel
- Insurance
- Servicing and repairs
- Road tax, where applicable
In addition, the company may be able to claim capital allowances on the cost of purchasing the vehicle, depending on emissions and vehicle type.
Company Cars and Benefit in Kind
Company cars often create a Benefit in Kind tax charge for the director or employee using the vehicle. This is calculated based on:
- The car’s CO₂ emissions
- The list price of the vehicle
- The level of personal use
Low-emission and electric vehicles typically attract much lower Benefit in Kind charges, making them more tax-efficient in many cases.
Official guidance on company cars and taxable benefits is available from HMRC.
A common mistake is claiming mileage for a company-owned car or claiming fuel costs on top of mileage for a personal vehicle. Both can lead to disallowed expenses and unexpected tax charges.
