Limited company expenses guide
Whether a one-person limited company (such as a contractor’s personal service company) or a thriving business with hundreds of employees, business expenses can help reduce an organisations tax liability.
Every business will incur costs, and one of the perks of being a director of a limited company is claiming allowable expenses. We’ve put a summary together which explains allowable expenses, and how business owners should claim them.
What are allowable expenses?
Allowable expenses are costs that have occurred entirely related to the business. As they are a business-related cost, allowable expenses can reduce a business’s tax liability.
For example, if a limited company earns £10,000 in a month and accrue £3,500 in allowable expenses in that same month, £6,500 of the business’s income will be subjected to taxation.
There are exceptions and additional rules to consider, and we recommend you speak with a professional (such as an accountant) for more information.
To keep HMRC happy, business expenses must be processed honestly and compliantly. The following rules apply:
- Allowable expenses must have resulted entirely as a result of business activity.
- Allowable expenses cannot be claimed for anything that’s considered pleasure – even if work and play mix. For example, you cannot extend a business trip by a night because you want to go and play golf – to then claim the extra night (and the golf) as an allowable expense. The nights that were genuinely related to business can be claimed.
- Keeping accurate records is important, and failure to produce receipts requested by HMRC could land directors in serious trouble.
- Allowable expenses can be paid for on business cards, via business bank transfer, or on an employee’s personal bank card (as they can be reimbursed by the business).