Tax deductible expenses for limited companies UK

Getting your year-end accounts and tax right often comes down to one thing: claiming the right expenses. Many limited company directors in the UK miss out on legitimate deductions or claim things that do not qualify, which can mean paying more tax than necessary or running into problems with HMRC. This article explains what expenses are tax deductible for limited companies in the UK, so you can keep your records in order and maximise relief where it is due.

We cover the main categories of allowable expenses, what HMRC expects you to prove, and common pitfalls. This is for directors and owners of UK limited companies who want to understand the rules without wading through the full legislation.

What counts as a tax-deductible expense for a limited company?

In broad terms, an expense is deductible for corporation tax if it is incurred "wholly and exclusively" for the purposes of the trade. That means the cost must be for the business, not for private use or a mix of both. If there is a mixed use (e.g. a car or phone), you can usually claim only the business proportion. Capital expenditure (e.g. equipment) is not deducted as an expense in one go; instead you claim capital allowances, which have their own rules.

Revenue vs capital

Day-to-day running costs (rent, salaries, utilities, professional fees, insurance) are revenue expenses and reduce your profit in the period you incur them. Buying a laptop or a van is capital; you claim allowances over time. Your accountant will separate the two and apply the right treatment. For more on year-end and tax, see our Statutory Accounts & Tax service.

Common deductible expenses for UK limited companies

Staff costs

Salaries, wages, employer National Insurance, pension contributions, and staff benefits that are taxable to the employee are generally deductible. So are recruitment costs and training that is relevant to the job.

Premises and overheads

Rent, rates, light, heat, and insurance for business premises are deductible. If you work from home, you can claim a proportion of household costs that relate to business use; HMRC accepts simplified methods (e.g. a flat rate per room or per hour) or actual costs. HMRC guidance on business expenses covers the principles.

Professional and admin

Accountancy fees, legal fees for business matters, bank charges, and insurance are deductible. Subscriptions to professional bodies that are relevant to your trade can also qualify.

Travel and subsistence

Travel that is necessary for the business (e.g. to a client or a temporary workplace) can be deductible. Commuting from home to a permanent workplace is not. Subsistence (meals and accommodation) on qualifying business trips is often allowable within limits. Company cars and fuel have specific rules; your accountant can advise.

Marketing and IT

Reasonable advertising, website costs, and software used for the business are deductible. Equipment may be capital (allowances apply).

Example

A small consultancy pays office rent, salaries, software subscriptions, and professional indemnity insurance. It buys a new laptop for a team member; that is capital and goes into the capital allowances calculation. The director drives to see clients; mileage at HMRC rates is claimed. The director also uses the same car for school runs; that private use is excluded. Keeping a mileage log and invoices makes it easier to support the claim at year end.

What you must keep for HMRC

HMRC can ask to see evidence that expenses are genuine and business-related. You should keep:

• Invoices and receipts for significant costs.
• A record of business vs private use where relevant (e.g. mileage, home office).
• Board minutes or approval for larger or unusual items.

Records must be kept for at least six years from the end of the accounting period. Good bookkeeping makes this straightforward.

What is not deductible

• Drawings or dividends (they are distributions, not expenses).
• Personal or private expenditure.
• Fines and penalties (e.g. parking fines, HMRC penalties).
• Entertainment of clients beyond modest amounts (rules are strict).
• Political donations (with limited exceptions).

If in doubt, ask your accountant before claiming. Disallowing an expense at enquiry is painful; getting it right from the start is simpler.

UK tax and legal accuracy

The rules described reflect the position for UK corporation tax and accounting periods in 2024/25 and 2025/26. "Wholly and exclusively" is a long-standing test in case law. HMRC’s Company Taxation Manual and the Corporation Tax Act 2009 set out the detailed rules. This article is for informational purposes only and does not constitute professional tax or financial advice. Please speak to a qualified accountant before taking action.

Frequently asked questions

Can I claim my home office as an expense?

Yes, if you use part of your home exclusively for business. You can claim a proportion of costs (rent, utilities, etc.) or use a simplified flat rate. The key is that the use must be for the business and properly documented.

Are client meals deductible?

Entertainment of clients is generally not deductible for corporation tax. Staff entertaining (e.g. a Christmas party within limits) can be. If you are unsure, check with your accountant.

What is the difference between an expense and capital expenditure?

An expense is a day-to-day cost that you deduct from profit in the period. Capital expenditure is on assets (equipment, property, etc.) and is dealt with through capital allowances over time.

Can I claim the cost of my accountant?

Yes. Accountancy fees for preparing accounts and tax returns, and for advice on the business, are normally deductible.

Do I need to keep paper receipts?

HMRC accept digital records. The important thing is that you can show the expense was incurred, for the business, and for the amount claimed. Invoices and bank statements are usually enough when supported by a clear policy (e.g. what you claim for travel).

Summary and next steps

What expenses are tax deductible for limited companies in the UK comes down to the "wholly and exclusively" test: costs that are for the trade, properly recorded and evidenced, can reduce your profit and your corporation tax. Get the basics right (staff, premises, professional fees, travel within the rules) and avoid claiming private or non-deductible items.

If you would like help with year-end accounts, tax, or expense policies, we would be glad to help. At Figures Chartered Accountants we work with UK limited companies to keep accounts and tax in order. You can book a discovery call or look at our Statutory Accounts & Tax service.