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Allowable Expenses

Allowable Expenses for Limited Company Directors in the UK

Published: 11 March 2025
12 min read
Bookkeeping, Running a Business

Mosan Ali
Reviewer
Mosan Ali is our Accounting Manager based in the UK and has a wealth of knowledge of UK GAAP, VAT, and PAYE. With 12 years of experience crunching numbers and ensuring compliance, he keeps our financial reporting ship-shape. Think of Mosan as our blog's accounting guru. He carefully reviews our UK-focused content, ensuring it's accurate, up-to-date, and packed with helpful tips for UK businesses. Get your taxes right from day one with our informative blog posts.
Learn more

As a director of a limited company, you can claim certain expenses through your business. This guide is designed to help you understand what expenses you can claim, making your experience as a company director smooth and efficient.

Key Takeaways

You can claim mileage for cars, travel expenses, subsistence, use of home as an office, trivial benefits, staff entertainment, annual party allowance, laptop or computer equipment, pension contributions, professional subscriptions, training courses, office supplies, business insurance, and mobile phone costs.
Always keep receipts and detailed records of expenses to substantiate your claims and ensure compliance with tax regulations.
Ensure that personal expenses are not claimed as business expenses, as only costs incurred wholly and exclusively for business purposes are deductible.

Whether you are a limited company director or a limited company owner, ensuring you keep track of limited company expenses can be highly tax efficient. When you monitor your own company costs meticulously and make sure every item of spending is documented, you reduce your tax bill significantly. This is because properly recording limited company business expenses helps lower your company profits and, in turn, your company's corporation tax liability.

What Are Allowable Expenses?

Allowable expenses are costs that are necessary for running your business and can be deducted from your taxable income. These expenses must be wholly and exclusively for business purposes, meaning they should not include any personal use. Common examples include office rent, professional fees, business travel, and staff salaries. Understanding what qualifies as an allowable expense helps you maximise tax efficiency while staying compliant with HMRC regulations.

Tip

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Remember to check which company expenses qualify as allowable expenses for limited companies so your limited company knows all the expenses you can claim. These can include day-to-day overheads, accommodation costs for trips to a temporary workplace, and business calls. Tracking them properly keeps you tax efficient and ensures you only pay tax on true profit. If you pay costs personally, use a company expense form to be reimbursed. This also helps manage overall limited company expenses effectively.

Fundamental Rules for Claiming Limited Company Expenses

Understanding how to claim allowable expenses correctly ensures compliance and helps manage your company’s finances efficiently. Keep these key rules in mind:

Proper payment methods– Business expenses should be paid directly from the business bank account. If you pay personally, ensure proper reimbursement with supporting documentation.
Accurate record-keeping– Maintain receipts, invoices, and bank statements to substantiate claims. HMRC may request evidence to verify expenses.
Wholly and exclusively for business– Expenses must be strictly for business purposes. If an expense has both business and personal use, only the business portion is deductible.
Tax deductibility– Many business expenses reduce corporation tax liability, but some, like client entertainment, are not tax-deductible expenses.
No dual-purpose expenses– You cannot claim costs that serve both personal and business purposes. For example, if a business trip includes leisure days, only business-related costs can be claimed.
Correct classification– Properly categorise expenses to ensure accurate tax reporting and compliance. Misclassified expenses may lead to issues with HMRC.
Necessary and reasonable costs– Expenses should be essential for running the business and reasonable in amount. Extravagant or unnecessary purchases are not claimable.
Timely claims– Record expenses in the correct accounting period based on when they were incurred, not when they were paid.

Following these rules helps ensure your limited company remains compliant while maximising tax efficiency.

Certain company expenses, like professional indemnity insurance, legal fees, and professional services, often count as allowable business expenses for a limited company. Categorising them properly reduces your tax bill and lets you claim tax relief, also lowering national insurance contributions. Paying for professional indemnity insurance or hiring professional services can protect your business and still be valid limited company expenses.

What Expenses Can a Company Director Claim?

Understanding the expenses you can claim is crucial for maximising tax efficiency and staying compliant with HMRC. This section highlights common expenses that directors and business owners can claim, helping you reduce taxable income and make the most of available deductions.

1 Mileage for cars

If you use your personal car for business-related travel, you are entitled to claim mileage expenses under the HMRC-approved rates. These rates are designed to cover not just fuel, but also maintenance, wear and tear, and any other costs associated with using your vehicle for business purposes. The rates are as follows:

45p per mile for the first 10,000 miles in the tax year, which ensures that frequent business drivers can claim a significant portion of their costs.
25p per mile for each mile over 10,000 miles, reflecting the lower costs of maintaining a vehicle after it has been used for a higher number of business miles.Remember to maintain accurate records of your trips, including the start and end points, purpose of the journey, and total mileage.

2 Travel expenses

When you travel for business, you can claim a range of travel-related expenses. These include:

Public transport fares: Any costs associated with using buses, trains, or other public transport to attend business meetings or events. Ensure to keep all receipts for public transport fares.
Taxi fares: If you need to take a taxi for business purposes, this is also claimable, including rides to meetings, conferences, or events.
Parking charges: If you park in paid parking spaces during business travel, those costs are allowable. Be sure to keep a copy of your parking tickets or receipts for submission.

It’s important to note that personal travel expenses, such as commuting to and from your regular place of work, cannot be claimed. Separate your personal and business-related travel expenses to stay compliant with HMRC guidelines.

Frequent traveling often involves fuel costs, hotels, or transit fares. If your limited company pays these company expenses for business, it lowers the company's tax bill. Keep receipts in an annual expense spreadsheet and note private use of company cars. How the company pays each cost affects your final claims.

While trips are common for a limited company, only claim the work-related portion to avoid an inflated tax bill or having to pay tax if HMRC deems any part personal.

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3 Subsistence

Subsistence claims cover the costs of meals and accommodation while you are working away from your usual place of business. You can claim:

Meals: If you are working away from your usual workplace, you can claim the cost of meals, such as lunch or dinner, during company trips. However, they should be reasonable, with HMRC not allowing extravagant claims.
Overnight accommodation: If your business trip requires an overnight stay, you can claim the cost of your accommodation. This could be a hotel, guest house, or any other type of accommodation that’s necessary for the business trip.

There are also flat-rate subsistence claims for travel lasting certain durations, designed to simplify the process:

£5 for travel lasting 5 hours or more
£10 for travel lasting 10 hours or more
£25 for travel lasting 15 hours or more and requiring an overnight stay.

Tip

Ensure you keep all receipts, and avoid claiming for personal meals or accommodation to prevent disallowed claims.

4 Use of home as an office

If you work from home, you can claim a proportion of your home-related expenses, reflecting the costs associated with running a business from a domestic setting. There are two ways to calculate these expenses:

Flat rate method: This method is simple, where you can claim £6 per week without needing to provide evidence of the actual costs. This can be useful for directors working part-time from home.
Actual costs method: For a more accurate claim, you can calculate a proportion of your home costs (such as mortgage interest, rent, utilities, internet, etc.) based on the area used for business and the time spent working from home.

To calculate actual costs:

Determine the total costs (e.g., mortgage interest, rent, utilities, internet).
Calculate the percentage of your home used for business purposes.
Multiply your total costs by the business use percentage, adjusting for how much time you spend working from home.

Keep detailed records, including bills, and ensure the figures you use are fair and accurate.

5 Trivial benefits

Trivial benefits are small, non-cash gifts you can provide to your employees or yourself as a director, which are exempt from tax. These benefits include things like flowers, a meal out, or a small gift to acknowledge work anniversaries or special occasions. To qualify as tax-free, these benefits must:

Cost £50 or less per benefit
Not be cash or cash vouchers
Not be provided as a reward for services or as part of a contractual obligation.

By offering such benefits, you can show appreciation for your staff without incurring extra tax liabilities, provided the criteria are met.

6 Client entertainment

While client entertainment expenses (such as meals or events with clients) are generally not tax-deductible, you can still record them in your accounts to maintain a complete picture of your business expenses. It's important to understand that these costs will not reduce your taxable income but may still provide useful documentation for your overall business expenditure.

Tip

Ensure that you do not confuse client entertainment with staff entertainment, as different rules apply to each.

If your limited company offers business entertainment (like client hospitality), it’s not tax-deductible or eligible for tax relief. Staff events can be allowable expenses if done correctly, but avoid giving a cash voucher as a trivial benefit without checking HMRC rules. Mislabelled perks might raise your tax bill. Stay clear on which costs are true limited company expenses.

7 Staff entertainment

Expenses related to staff entertainment are allowable as business expenses. This includes costs for events like annual staff parties (e.g., Christmas parties). However, there are some limits. You can claim up to £150 per head for each employee, per event, in a given year. This £150 limit covers all costs for the event, including venue hire, food, drink, and entertainment. Ensure to include all attendees in your calculation, as failure to do so could result in disallowed claims.

8 Annual party allowance

You can claim the cost of annual staff events, as long as they meet specific criteria. These events must be open to all employees and the total cost per person does not exceed £150. The £150 limit can cover multiple events throughout the year as long as the cost per head does not exceed the threshold. This allowance can help foster good employee relations without incurring unnecessary tax liabilities.

9 Purchasing laptop or computer equipment

If you purchase a laptop, computer, or related equipment that is used exclusively for business purposes, you can claim the full cost of the equipment. Keep in mind that the equipment must be used solely for business, and if there is any personal usage, you should adjust the claim accordingly. To support your claim, ensure that you retain receipts for the purchase and document the business use of the equipment.

10 Directors' pension contributions

Directors can make pension contributions through their limited company, which can be deducted as a business expense. This helps reduce your tax liability while securing your financial future. Key considerations include:

Contributions must be made to a registered pension scheme.
The company can claim tax relief on contributions, reducing the overall taxable income.
Contributions are subject to annual limits based on pension scheme regulations and allowances.

Tip

Be sure to consult with your accountant to ensure contributions are structured appropriately and comply with current regulations.

Some directors fund private medical insurance through the business, but you might need to pay national insurance contributions and additional national insurance. Plus, not all such spending qualifies for relief, so check how it affects your company's tax bill first.

11 Additional claimable expenses

In addition to the expenses mentioned, there are several other costs that can be claimed as business expenses. These include:

Professional subscriptions: Membership fees to professional bodies relevant to your business activities.
Training courses: Costs associated with courses designed to improve skills and knowledge that benefit the business.
Office supplies: Stationery, printing, and other office-related materials are deductible as business expenses.
Business insurance: Premiums for insuring your business and its assets, such as equipment or stock.
Mobile phones: If the mobile phone contract is in the company’s name, you can claim the full cost of the phone and the associated contract.

For professional services like accountancy or legal fees, your limited company often gets tax relief if they’re solely for business. The same goes for professional membership fees. Large costs may be capital expenses, so use a dedicated business bank account and log them carefully as ltd company expenses.

Keeping Accurate Records of Limited Company Expenses

Accurate and consistent record-keeping is essential for limited companies when claiming expenses. HMRC requires businesses to maintain clear evidence for all expenses, including receipts, invoices, and bank statements. These records should show the date, amount, supplier, and purpose of each expense. Digital copies are acceptable, provided they are legible and stored securely. Keeping well-organised records not only helps with tax compliance but also makes preparing your company’s annual accounts and tax returns much smoother. Proper documentation also supports any future audits or reviews by HMRC, ensuring your claims hold up under scrutiny.

Expenses You Can’t Claim as Allowable for Your Ltd Company

When managing your company’s finances, it’s important to know not just what you can claim, but also what falls outside the scope of allowable expenses. Certain costs, even if linked to your business, do not qualify for tax relief and cannot be deducted from your company’s profits.

Expense Type	Description
🚫 Personal costs and non-business expenses	Expenses with a personal element, such as clothing (unless protective or branded uniforms), personal groceries, or non-business travel, cannot be claimed.
🍽️ Client entertainment and hospitality	Costs for entertaining clients, such as lunch, event tickets, or corporate hospitality, are not tax-deductible, even if related to business.
💸 Fines and penalties	Fines or penalties, including late fees, speeding tickets, or regulatory fines, are not allowable expenses.
🏭 Capital expenditure	Large purchases, like equipment or vehicles, may fall under capital allowances, which have different tax rules.
❤️ Charitable donations	Donations are not automatically allowable expenses, and specific rules must be followed for tax purposes.
🗳️ Political donations	Contributions to political parties or campaigns are not allowed as business expenses.

Business entertainment for clients isn’t deductible, and some perks may raise your national insurance or force you to pay tax personally. Some directors use a pension provider to gain tax relief without extra NI. In a few cases, you can claim personal tax relief on personal outlays if kept separate. Track expenses for limited operations alongside expenses for limited companies, and consult professional services if in doubt. The government’s tax free childcare scheme is personal, not for a limited company claim.

Advantages of Claiming Expenses as a Director

As a director of a limited company, properly claiming business expenses offers several financial and tax benefits. By understanding which costs you can recover, you not only reduce your company’s taxable profit but also manage your personal and company finances more effectively.

Lower corporation tax

Every allowable expense reduces your company’s profit before tax, directly lowering your corporation tax bill. This allows your business to retain more of its earnings to reinvest or distribute as dividends.

Personal reimbursement

If you cover business costs personally — such as paying for travel, meals, or office supplies out of your own pocket — you can reclaim these expenses from the company. This ensures you are not left out of pocket for legitimate business spending.

Clear separation of personal and business finances

Proper expense claims help maintain a clear distinction between personal and company finances. This is essential for compliance and simplifies record-keeping, which is particularly important if HMRC ever reviews your accounts.

Improved cash flow management

By claiming expenses regularly, you ensure that the company accounts accurately reflect the true cost of running the business. This helps you manage cash flow better and plan for future spending.

Professional image and credibility

Well-documented and reasonable expense claims show that you manage the company professionally. This can be particularly important if you are seeking investment, applying for financing, or working with external accountants.

Tip

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Summary

Understanding allowable expenses is essential for every limited company director. By correctly identifying and claiming legitimate business costs, you can reduce your company’s taxable profits, improve cash flow, and ensure compliance with HMRC rules. Good record-keeping and clear separation of personal and business expenses are key to successful claims.

When in doubt, always refer to the fundamental rules or seek professional advice to avoid mistakes that could lead to penalties or rejected claims. Proper expense management not only saves tax but also helps present your company as well-organised and financially responsible.

Mosan AliReviewer

Mosan Ali is our Accounting Manager based in the UK and has a wealth of knowledge of UK GAAP, VAT, and PAYE. With 12 years of experience crunching numbers and ensuring compliance, he keeps our financial reporting ship-shape. Think of Mosan as our blog's accounting guru. He carefully reviews our UK-focused content, ensuring it's accurate, up-to-date, and packed with helpful tips for UK businesses. Get your taxes right from day one with our informative blog posts.

Learn more

FAQ

Can a director put personal expenses through the company?
No, directors cannot put personal expenses through the company and claim them as business costs. HMRC requires all claimed expenses to be wholly and exclusively for business purposes. Personal spending — such as personal groceries, holidays, or clothing — should never be paid from the company’s funds or included in the company’s accounts as business expenses.
Is directors' remuneration an operating expense?
Yes, directors’ remuneration — which includes salary, bonuses, and benefits paid to directors — is considered an operating expense for the company. These payments reduce the company’s taxable profit, provided they are reasonable and directly related to the director’s role within the business.
How does reimbursement of expenses to directors work?
If a director pays for business expenses personally, they can be reimbursed by the company. To ensure compliance, the director must provide receipts or other proof of the expenses, and the costs must be necessary and exclusively for business purposes. Proper documentation helps support the company’s tax position and ensures accurate financial records.
Can a director claim medical expenses through the company?
In most cases, medical expenses for directors are not allowable business expenses because they are considered personal costs. However, if the company provides health insurance as part of a benefit package for directors and employees, this can be an allowable expense — though it may still be treated as a benefit-in-kind and subject to tax. For personal medical treatments unrelated to work, the director cannot claim these costs through the company.

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