Expenses Guide for Limited Companies and Directors: Everything You Need to Know

If you are a director of a limited company, it is important to understand what expenses you can claim back to reduce your tax bill. Knowing what expenses are allowable will help you maximise your profits and minimise your tax liability.

Expenses can be claimed for any costs incurred wholly and exclusively for the purpose of the business. However, it’s important to note that not all expenses are allowable. Some expenses are disallowed for tax purposes, while others are restricted or require additional documentation to support the claim.

To ensure you are claiming the correct expenses, it’s important to have a good understanding of what is allowable. This guide will provide you with an overview of the expenses that are commonly claimed by limited company directors, as well as some tips on how to keep accurate records and avoid common mistakes. By the end of this guide, you will have a better understanding of what expenses you can claim back and how to do so in a compliant manner.

Understanding Limited Company Expenses

As a director or employee of a limited company, it’s important to understand the expenses that you can claim back from your business. Limited company expenses are costs that are incurred wholly and exclusively for the purpose of your business.

When you incur an expense that is related to your business, you can claim it back from your company. This reduces your company’s profit and can therefore reduce the amount of corporation tax that your business has to pay.

It’s important to note that not all expenses are allowable. The HMRC has strict rules around what expenses can be claimed back, and there are certain expenses that are not allowed. You can find a comprehensive list of allowable expenses in the HMRC’s tax guide.

Some common limited company expenses that you may be able to claim back include:

• Travel and food expenses incurred while on business trips
• Eye tests required for employees who use display screen equipment
• Business insurance premiums
• Costs incurred while working from home, such as heating and electricity
• Accountancy fees
• Staff entertainment fees (subject to certain conditions)
• Equipment costs, such as laptops and phones
• Training and development costs
• Subscriptions to professional bodies

It’s important to keep detailed records of all expenses that you incur, including receipts and invoices. This will help you to accurately calculate the expenses that you can claim back from your business and ensure that you are complying with HMRC rules.

In summary, understanding limited company expenses is crucial for directors and employees of a limited company. By claiming back allowable expenses, you can reduce your company’s profit and potentially reduce the amount of corporation tax that your business has to pay. However, it’s important to ensure that you are only claiming back expenses that are allowable according to HMRC rules.

Allowable Business Expenses

As a limited company director, you can claim allowable business expenses to reduce your company’s taxable profit. These expenses are costs incurred wholly and exclusively for the purpose of running your business. By claiming allowable expenses, you can reduce your company’s tax liability and increase your profits.

Allowable business expenses include expenses for items such as office rent, business rates, utility bills, and insurance. You can also claim expenses for travel, subsistence, and entertainment, as long as they are incurred wholly and exclusively for business purposes.

It’s important to note that you cannot claim expenses for personal items or expenses that have a dual purpose for business and personal use. For example, you cannot claim expenses for your personal phone or home internet connection, even if you use them for business purposes.

When claiming allowable expenses, it’s important to keep accurate records and receipts to support your claims. You should also ensure that your expenses are reasonable and necessary for your business.

Claiming allowable expenses can provide tax relief for your business. By reducing your company’s taxable profit, you can reduce your corporation tax liability. This can help to increase your company’s profits and cash flow.

In summary, allowable business expenses are essential costs that are incurred wholly and exclusively for the purpose of running your business. By claiming these expenses, you can reduce your company’s tax liability and increase your profits. However, it’s important to keep accurate records and ensure that your expenses are reasonable and necessary for your business.

Employee Salaries and Benefits

As a director of a limited company, you have the flexibility to decide on your employee’s salaries and benefits. It’s important to keep in mind that you must pay your employees at least the National Minimum Wage or National Living Wage, depending on their age and employment status.

When it comes to employee salaries, you can choose to pay your employees a salary that is above or below the National Insurance Contributions (NICs) threshold. Paying a salary above the NICs threshold will result in your employees paying NICs, which will be deducted from their pay. On the other hand, paying a salary below the NICs threshold will mean that your employees will not pay NICs, but this may affect their entitlement to certain benefits.

In addition to salaries, you can also provide your employees with benefits such as pensions, trivial benefits, and childcare costs. Providing a workplace pension is a legal requirement for all employers in the UK, and you must enroll your employees in a pension scheme and make contributions to their pension pot.

Trivial benefits are small gifts or perks that you can provide to your employees, such as a gift card or a meal out. These benefits are tax-free as long as they meet certain criteria, such as not exceeding £50 per employee.

If you decide to host an annual staff party, you can provide your employees with food, drink, and entertainment, and this will be tax-free as long as the cost per employee does not exceed £150.

Overall, when it comes to employee salaries and benefits, it’s important to ensure that you are meeting your legal obligations and providing fair compensation to your employees. Providing additional benefits can also help to attract and retain talented employees. Learn how to Calculate Holiday Pay for Staff to ensure compliance and fairness.

Office and Equipment Expenses

As a limited company director, you can claim expenses for office furniture and equipment, as long as it is used solely for business purposes. This includes chairs, desks, filing cabinets, and other office furniture. You can also claim expenses for office equipment such as computers, printers, and telephones.

It’s important to note that if you use the furniture or equipment for personal use as well as business use, you can only claim a proportion of the cost. You can work this out by calculating the percentage of time the item is used for business purposes.

If you rent your business premises, you can claim the rent as an expense. However, if you work from home, you can only claim a proportion of your household bills, such as heating, electricity, and council tax, as an expense. You can calculate this by working out the percentage of your home that is used for business purposes.

When claiming expenses for equipment, you should keep receipts and invoices as evidence of the cost. It’s also important to keep records of the date of purchase, the item purchased, and the amount paid.

In summary, you can claim expenses for office furniture and equipment, as well as rent for your business premises. If you work from home, you can claim a proportion of your household bills. Keep receipts and invoices as evidence of the cost, and make sure to keep accurate records.

Travel and Accommodation Expenses

As a limited company director or employee, you may need to travel for business purposes. Travel expenses can include fuel, public transport, and hotel rooms. You can claim travel expenses as long as they are incurred wholly and exclusively for business purposes.

When it comes to fuel, you can claim the cost of fuel for business journeys in your own car using the mileage rates set by HM Revenue and Customs. The current mileage rates are 45p per mile for the first 10,000 miles and 25p per mile for anything over 10,000 miles. If you use your own car for business purposes, you can also claim for other expenses such as parking fees and tolls.

If you use public transport for business purposes, you can claim the cost of your tickets. However, if you have a season ticket, you can only claim for the cost of the business journeys you make. You cannot claim for the cost of your daily commute.

When it comes to accommodation expenses, you can claim the cost of hotel rooms if you need to stay away from home overnight for business purposes. However, you cannot claim for the cost of meals or other expenses incurred during your stay.

It is important to keep accurate records of your travel and accommodation expenses. You should keep receipts, invoices, and any other relevant documents as evidence of your expenses. You should also keep a record of the date, time, and purpose of each journey.

In summary, as a limited company director or employee, you can claim travel and accommodation expenses if they are incurred wholly and exclusively for business purposes. You can claim for fuel, public transport, and hotel rooms, but not for meals or other expenses incurred during your stay. Keep accurate records of your expenses to ensure that you can claim the correct amount.

Professional Development and Subscription Expenses

As a limited company director, you can claim tax relief on professional development and subscription expenses that are relevant to your line of work. This includes courses, training programs, and conferences that help you improve your skills and knowledge. You can also claim tax relief on professional subscriptions that you pay for, such as membership fees for professional bodies or trade associations related to your business.

To qualify for tax relief on professional development expenses, the training or course must be relevant to your business and help you improve your skills or knowledge. It must not be for a completely new trade or profession. For example, if you are a software developer, you could claim tax relief on a course that teaches you a new programming language, but not on a course that teaches you how to fly a plane.

Similarly, to claim tax relief on professional subscription expenses, the subscription must be relevant to your business and help you perform your duties more efficiently. You cannot claim tax relief on subscriptions to general interest magazines or newspapers, even if you read them for business purposes.

It is important to keep accurate records of all professional development and subscription expenses that you claim tax relief on. This includes receipts, invoices, and proof of payment. You should also keep a record of the date, location, and purpose of any training courses or conferences that you attend.

Overall, claiming tax relief on professional development and subscription expenses can help you save money and improve your skills and knowledge. Just make sure that the expenses are relevant to your business and that you keep accurate records of all transactions.

Marketing and PR Expenses

As a Limited Company or Director, you are likely to incur expenses related to marketing and PR. These expenses are generally considered allowable business expenses, as they are necessary to promote and sell your products or services.

Marketing expenses can include costs related to advertising, such as print or online ads, billboards, or radio and TV commercials. You may also incur expenses for market research, such as surveys or focus groups, or for creating marketing materials such as brochures, flyers, or business cards.

PR expenses can include costs related to media relations, such as press releases, media kits, or media training. You may also incur expenses for events, such as trade shows or product launches, or for creating content such as blog posts, social media updates, or videos.

It is important to note that not all marketing and PR expenses are allowable business expenses. For example, expenses related to entertaining clients or suppliers, such as taking them out for meals or drinks, are generally not allowable. Similarly, expenses related to personal image or reputation, such as cosmetic surgery or personal styling, are not allowable.

To ensure that you are claiming allowable marketing and PR expenses, it is recommended that you keep detailed records of all expenses and consult with a qualified accountant or tax professional. They can help you determine which expenses are allowable and which are not, and ensure that you are claiming them correctly on your tax returns.

Insurance and Medical Expenses

As a limited company director, you may be able to claim certain insurance and medical expenses as allowable expenses. Here are some of the expenses that you can claim:

Business Insurance

Business insurance is a type of insurance that protects your company from financial losses due to unexpected events such as fires, theft, or accidents. As a limited company director, you can claim the cost of your business insurance as an allowable expense.

Professional Indemnity Insurance

Professional indemnity insurance is a type of insurance that protects your company from claims made by clients who believe that your work has caused them financial loss. If you work in a profession where professional indemnity insurance is required, you can claim the cost of your insurance as an allowable expense.

Public Liability Insurance

Public liability insurance is a type of insurance that protects your company from claims made by members of the public who have been injured or suffered damage to their property as a result of your company’s activities. If you work in an industry where public liability insurance is required, you can claim the cost of your insurance as an allowable expense.

Medical Insurance

Medical insurance is a type of insurance that covers the cost of private medical treatment. As a limited company director, you can claim the cost of your medical insurance as an allowable expense if it is provided as a benefit to all employees.

Private Medical Insurance

Private medical insurance is a type of insurance that covers the cost of private medical treatment for you and your family. As a limited company director, you can claim the cost of your private medical insurance as an allowable expense if it is provided as a benefit to all employees.

Life Insurance

Life insurance is a type of insurance that pays out a lump sum to your beneficiaries in the event of your death. As a limited company director, you can claim the cost of your life insurance as an allowable expense if it is provided as a benefit to all employees.

Eye Test, Glasses, and Contact Lenses

Eye tests, glasses, and contact lenses can be claimed as allowable expenses if they are required for you to carry out your job. However, if you use them for personal reasons as well, you can only claim the proportion of the cost that relates to your work.

Health Check and Medical Check

Health checks and medical checks can be claimed as allowable expenses if they are required for you to carry out your job. However, if you use them for personal reasons as well, you can only claim the proportion of the cost that relates to your work.

It is important to note that you can only claim expenses that are wholly and exclusively for the purpose of your business. If you are unsure whether an expense is allowable, seek advice from a qualified accountant.

Home Office Expenses

As a limited company director, you may be entitled to claim home office expenses. This is because you are using part of your home as an office for business purposes. There are several expenses that you can claim, including:

• Use of home: Since 6 April 2020, you can claim a use of home allowance at a fixed rate of £6 per week, which is based on HMRC approved rates. This allowance gives the company a total tax deduction of £312 per year. You can use this allowance to cover the cost of utilities, such as gas and electricity.
• Broadband and landline: If you use your broadband and landline for business purposes, you can claim a proportion of the cost as a business expense. This is because you are using these services to carry out your work.
• Mobile phone: If you use your mobile phone for business purposes, you can claim a proportion of the cost as a business expense. This includes the cost of calls, texts and data that you use for work.
• Phone bills: If you have a separate phone line for your business, you can claim the full cost of this as a business expense. This includes the cost of line rental and any calls made on this line.
• Utility bills: If you use your home office for business purposes, you can claim a proportion of your utility bills as a business expense. This includes the cost of gas, electricity, water and council tax.

It’s important to keep accurate records of your home office expenses, as you will need to provide evidence to HMRC if you are ever audited. You should keep receipts, bills and invoices for all expenses that you claim.

It’s also worth noting that if you use your home office for personal purposes as well as business purposes, you can only claim a proportion of the expenses that relate to your business use. For example, if you use your broadband for both personal and business purposes, you can only claim a proportion of the cost that relates to your business use.

In summary, as a limited company director, you can claim home office expenses if you use part of your home as an office for business purposes. This includes the use of home allowance, broadband, landline, mobile phone, phone bills and utility bills. Keep accurate records of your expenses and only claim a proportion of the expenses that relate to your business use.

Other Business Expenses

Apart from the common expenses that limited companies and directors can claim, there are other business expenses that are also eligible for tax relief. Here are some of them:

• Postage: You can claim the cost of postage for business-related mailings, such as sending invoices or contracts.
• Bank Charges: If your business incurs bank charges, such as interest on loans or overdraft fees, you can claim them as business expenses.
• Entertainment: You can claim the cost of entertaining clients or customers, such as taking them out for a meal or drinks, as long as it is a reasonable expense and directly related to your business.
• Gifts: You can claim the cost of gifts to clients or customers, as long as the cost per person does not exceed £50 and the gift is not food, drink, or tobacco.
• Stationery: You can claim the cost of stationery, such as paper, pens, and envelopes, that is used for business purposes.
• Parking Costs: You can claim the cost of parking when you are on business trips, such as visiting clients or suppliers.
• Congestion Charges: You can claim the cost of congestion charges if you are driving in a congestion charge zone for business purposes.
• Road Toll Fees: You can claim the cost of road toll fees if you are driving on toll roads for business purposes.
• Vehicle Repairs: You can claim the cost of repairs to your business vehicle, as long as they are necessary and directly related to your business.
• Vehicle Insurance: You can claim the cost of vehicle insurance if you have a business vehicle.
• Vehicle Expenses: You can claim the cost of running your business vehicle, such as fuel, road tax, and MOT.

Remember that you can only claim expenses that are wholly and exclusively for business purposes. You should keep accurate records of all your business expenses and make sure that you have receipts or invoices to support your claims.

Tax Considerations for Limited Companies

As a director of a limited company, you have certain tax considerations that you need to be aware of. One of the most important of these is corporation tax. This tax is levied on the company’s profits, and it is your duty as a director to calculate, pay, and report this to HM Revenue and Customs (HMRC). Currently, the rates are 19% for companies making a profit of £50,000 or less, and 25% for those making a profit of more than £50,000.

It is also important to understand the tax laws that apply to your business. This includes understanding what expenses you can claim for business purposes, and what expenses are considered to have a dual purpose (i.e. both business and personal use). For example, if you have a rental agreement for a property that you use partly for business and partly for personal use, you can only claim a proportion of the expenses that relate to the business use.

When it comes to business mileage, you can claim a tax deduction for the mileage you incur while carrying out your duties as a director. However, it is important to keep accurate records of your mileage and the purpose of each journey, as HMRC may ask to see these records if they decide to investigate your tax affairs.

As a sole trader, you are responsible for completing your own tax returns and keeping accurate records of your income and expenses. However, as a director of a limited company, you may choose to hire an accountant to take care of your accounting and tax affairs. This can be particularly useful if you are not familiar with accounting software or tax law.

In summary, as a director of a limited company, you have certain tax considerations that you need to be aware of. These include understanding corporation tax, what expenses you can claim for business purposes, and what expenses have a dual purpose. You should also keep accurate records of your business mileage and consider hiring an accountant to take care of your accounting and tax affairs.

Conclusion

In conclusion, understanding the expenses guide for limited companies and directors is crucial for maintaining financial stability and avoiding costly mistakes. By keeping accurate records and understanding what expenses are allowable, you can save money and ensure compliance with HMRC regulations.

Remember to keep track of all expenses, including receipts and invoices, and categorise them correctly to make it easier to file your tax returns. Additionally, it’s important to be aware of any changes to tax laws that may affect your expenses claims.

Some key takeaways from this guide include:

• Limited companies can claim a wide range of business and business-related expenses, including travel, equipment, and training costs.
• Directors can also claim expenses for travel, accommodation, and subsistence, as well as certain benefits such as private medical insurance and childcare vouchers.
• It’s important to be aware of any exclusions or limits on expenses claims, such as restrictions on entertainment expenses or the need to apportion costs for home office expenses.
• By working with a qualified accountant or tax advisor, you can ensure that your expenses claims are accurate and compliant with HMRC regulations.

Overall, understanding the expenses guide for limited companies and directors is a key part of running a successful business. By taking the time to familiarise yourself with the rules and regulations, you can save money and avoid costly mistakes, giving your business the best chance of success.