Filling out your Company Tax Return isn’t high on the list of enjoyable activities, but claiming back any allowable expenses does as least ease some of the burden of paying your Corporation Tax bill. The baffling part is knowing what you can claim for.
Very broadly speaking, expenses are only ‘allowable’ if they are wholly and exclusively for the use of your limited company. That said, there might be times that something in your business has a dual purpose, used both by the company to carry out its activities as well as used for personal reasons (company cars are a typical example).
It can get a bit complicated, so we’ll look at some of the most frequently asked questions limited companies have about claiming their expenses (and what those expenses might be).
The terminology can be a bit confusing, because companies don’t ‘claim’ expenses in the sense that someone will repay the cost to them. Instead, allowable expenses can be offset against the company’s tax bill, helping to reduce the amount of Corporation Tax that’s due. This is because businesses pay tax on their profits, not the total amount of income they earn (so technically you’re actually claiming tax relief).
What expenses can limited companies claim tax relief on?
This one is a bit more technical. You might consider lunch out with a client to be a form of advertising and marketing, but HMRC consider it to be entertainment (which you can’t claim tax relief for). Fortunately most other forms of advertising and marketing are allowable.
Broadband and phone
You can claim tax relief on broadband and phone costs as long as the contract is in the company’s name. Unfortunately, you won’t be able to claim if the contract is residential and you can’t prove a clear split in the service between personal and business use.
Likewise, you may be liable to pay Benefits in Kind charges (paying tax and National Insurance on the equivalent value of the benefit that you received), if you have significant personal usage on a business contract.
Business insurance for your limited company, such as public liability, employers liability, or legal expense cover, are all claimable.
Despite entertaining clients not being an allowable expense, you might be able to claim tax relief on the cost of entertaining employees. For the event to qualify without being a taxable benefit in kind, it must be an annual event (like a Christmas party), open to all staff, and cost less than £150 per guest.
You can claim for computer equipment as long as you use it solely for the business.
Directors and employees can claim for the cost of one private health assessment or health screening each per year without it being considered a staff perk (and therefore subject to benefit in kind charges).
Businesses can also claim for overseas medical costs if an individual needs medical attention whilst they’re away on a business trip. The costs must be charged directly to the company and the arrangements made in advance.
If you require treatment for a disease or injury that was sustained through work, this is also tax-deductible. For example, if employees consistently work on a computer you can claim for the cost of an eye test, although the cost of the prescription glasses or contact lenses is not allowable and the employee must pay for these themselves.
Claiming for motoring and vehicle expenses changes depending on whether you’re a sole trader or operating as a limited company, so make sure you check the correct rules!
If your limited company has a commercial vehicle, you can claim all of the costs of the vehicle, including road tax, insurance, fuel, leasing, and even washing and repairs. There are more specific rules if you use an electric vehicle.
If your vehicle is classed as dual purpose (where it’s used for a mixture of business and personal travel) then you might decide to buy the car from your own personal funds and then charge mileage to your business. This can help to avoid any confusion, and means you won’t end up paying benefit in kind charges.
You can claim tax relief on the cost of renting out premises for your business. If you work from home you might also be able to claim relief on some of the associated expenses.
This doesn’t include the cost of buying the equipment, but you can claim for the cost of running a fax machine (yup), mobile phone, a landline, or the internet.
Not to worry though, you can still claim your post-its and stamps along with other stationery and postage costs (as long as they’re just for the business).
A mobile phone for your business is allowed, but the contract must be in the name of the company. You can only claim relief on the first handset you provide to each employee though, and an extra one will be taxed as a benefit in kind.
You must also pay for the mobile phone straight out of the company account. This exemption applies to the cost of the actual handset, line rental and (if applicable) calls.
If the business requires a subscription to a professional body, you can cover these costs without paying extra tax or National Insurance providing it appears in HMRC’s approved subscription index.
The subscription must come directly from the business bank account (rather than from an employee’s account) otherwise it will be subject to PAYE and employee’s National Insurance as it would be considered part of the employee’s salary.
Companies can claim back training costs as long as employees need it for their role within the business. The training fees must be paid for directly from the company account.
Travel and accommodation
If you have to travel for work, the costs of your travel and accommodation may be claimable although it’s well worth noting that these expenses are subject to the 24 month rule.
The 24 month rule states that if the employee has spent, or is likely to spend, 40% of their time at that location within a 24 month period, it’s no longer a temporary workplace (so you can’t claim). This is because you can’t claim for travel too and from a regular place of work (your ‘commute’).
If your line of work requires specific uniforms or work clothing then you may be able to claim relief on this. The rules can be a bit confusing, but typically this is only for protective clothing, costumes, or safety wear.