The headline rule
HMRC's rule for limited companies: an expense is allowable if it's wholly and exclusively for the purposes of the trade. The same standard as sole traders, but with a few important differences:
- Pension contributions are far more flexible for company-paid director pensions vs sole-trader personal pensions.
- Some entertaining is allowable for staff (within limits) but never for clients.
- Equipment via Annual Investment Allowance is the same 100% upfront deduction as sole traders, up to £1M/year.
- Director's salary is a deductible expense to the company, unlike sole-trader drawings.
Commonly allowable
- Director and employee salaries + employer NI.
- Director and employee pension contributions (up to £60K annual allowance, with carry-forward).
- Office costs: rent, business rates, utilities, internet, stationery, postage.
- Use of home as office: the company can pay you a small flat allowance (£26/month) or rent based on actual use.
- Travel: business mileage at 45p/25p, train/taxi fares, parking. Not commuting to a regular workplace.
- Subsistence: meals on overnight business trips.
- Equipment: laptops, monitors, phones, tools - via AIA.
- Software and subscriptions used for the business.
- Professional fees: accountant, lawyer, consultant fees related to the trade.
- Business insurance: PI, public liability, contents insurance for office equipment.
- Training related to the existing trade (not new trades).
- Marketing: advertising, paid social, website hosting, email tools.
- Staff entertainment: up to £150/head/year for the annual party (strict conditions apply).
Commonly rejected
- Client entertainment: not allowable, ever. (Staff entertainment up to £150/head/year is allowed.)
- Commuting to a regular place of work.
- Normal clothing, even if only worn for work. Branded uniform and protective clothing are allowable.
- Training in a new trade unrelated to the existing business.
- Fines and penalties from HMRC, traffic, or regulatory.
- Personal expenses dressed up as business: gym memberships "for stamina", gardening, etc.
Frequently asked questions
Can my company pay for my home office equipment?+
Yes - laptops, monitors, chairs, desks used for business work are allowable. If used for personal too, technically you should apportion, though HMRC tends to be lenient on a single-director home setup.
What about my mobile phone?+
Best practice: have a dedicated business phone contract in the company's name. The full cost is then allowable. Mixing a personal phone is messier - you'd claim only the business proportion of bills.
Can I claim my home WiFi?+
If the company pays for a separate business broadband line, fully allowable. If you're claiming the business proportion of a home line you'd already have, only the incremental business cost is allowable - which is often £0 in practice.
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