A guide to the most common business expenses for limited companies
By PaperRocket Accounting, May 16 2019 09:57AM
Whether you’ve just set up your company, or you’re a seasoned pro who has been running their company for years, you may not be entirely clear on what exactly you can and cannot put through your limited company as a business expense. Well, never fear, this blog is here to help!
Firstly, it is worth noting that the types of expenditure you can claim for through your limited company is largely dependent on the type of sector you are working in. So, an electrician working through his own company is going to have vastly different expenses to put through their company than, say, an IT contractor or management consultant.
What does HMRC say?
HMRC's rule when it comes to claiming expenditure through your limited company is that for the expense to be claimable it must have been incurred wholly, exclusively and necessarily for the purpose of the business. This is the golden rule with any company expenditure. If you need that expense in order to perform your job properly, and it can be reasonably justified, then you can likely put it through your company. If, on the other hand, you book a holiday away, take the laptop to work from the beach and then claim it’s a business trip, this will certainly not be deemed a legitimate expense!
Why are HMRC bothered about what expenses I put through my company?
Any genuine expenditure that the company incurs will reduce the profits of the company and in turn therefore reduce the amount of corporation tax that will be payable to HMRC. So, as a very basic example, if your income is £100, and you have £40 of genuine, tax deductible business expenditure, you will only pay corporation tax on the remaining £60.
What are the most common types of expenditure I may put through my company?
Below is a list of the most common types of business expenses. This list is a guideline for a typical IT or management consultant.
• Travel to and from your temporary place of work (if you are there for less than 24 months)
• Travel to meet clients for business meetings
• Mileage claims of 45 pence per mile for the first 10,000 miles of the year (25 pence thereafter)
• Company insurances such as professional indemnity insurance
• Hotel stays and subsistence for overnight business travel
• Telephone and broadband costs
• Stationery and postage
• Computer equipment such as laptops, printers, software licences
• Professional subscriptions
• Use of home allowance
• Childcare vouchers
• Accountancy fees and legal costs
• Entertaining clients (see below for more on this)
• Entertaining staff (check with your accountant for details on this allowance)
• Paying into a personal pension
• Training courses and seminars
This is not an exhaustive list by far but is a general guide most contractors can use. If you are unsure if you can claim specific items through your limited company it is always best to run these past your accountant who will be able to give specific advice.
Are all genuine business expenses tax deductible?
Unfortunately, no. Some expenditure, such as entertainment of a client or certain gifts to clients, whilst being legitimate business expenses (meaning you can pay for them through the company) will not reduce your corporation tax. However, they are still worth putting through the company as doing so will save you paying for the relevant expense out of your own pocket (income which will have already been taxed).
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