What Business Expenses Can I Deduct from Corporation Tax?

When you run a limited company, you can deduct many of your business costs from your profit before paying Corporation Tax. These are called allowable expenses or revenue expenses, and understanding what you can and cannot claim will help reduce your company's tax bill. This gu...

What counts as an allowable expense?

An allowable expense (also called a revenue expense) is a cost you can deduct from your company's profit when working out how much Corporation Tax to pay. These expenses must be included in your company accounts.

To qualify, an expense must meet two key tests:

It must be for business purposes only (known as the 'wholly and exclusively' principle)
It must not be specifically disallowed by HMRC

Revenue expenses are day-to-day running costs that don't involve buying, selling or changing a capital asset (such as property or large equipment). Capital expenses are treated differently and claimed through capital allowances instead.

The 'wholly and exclusively' rule

The most important principle is that expenses must be wholly and exclusively for business purposes. This means the cost must be incurred entirely for business reasons, not for personal use.

If something has both a business and personal purpose, you may still be able to claim the business portion if you can clearly separate it from the personal use.

Office and property costs

You can deduct expenses related to running your business premises, including:

Rent for business premises
Business rates and water rates
Utility bills (electricity, gas, heating)
Property insurance
Security costs
Stationery and printing supplies
Postage
Phone, mobile, fax and internet bills
Printer ink and cartridges

Computer software can be claimed as an allowable expense if your business uses it for less than 2 years, or if you make regular payments to renew the licence (even if you use it for more than 2 years). Other software may need to be claimed as capital allowances.

Repairs and maintenance of business premises and equipment count as allowable expenses. However, alterations to install or replace equipment may need to be claimed as capital allowances depending on the nature of the work.

You cannot claim for any non-business use of premises, phones or other office resources.

Staff costs

You can deduct expenses related to employing staff, including:

Salaries and wages
Employer National Insurance contributions
Pension contributions
Subcontractor costs
Employee benefits (subject to specific rules)

Travel and vehicle expenses

Allowable travel costs include:

Vehicle insurance
Repairs and servicing
Fuel
Parking charges
Hire charges
Vehicle licence fees (car tax)
Breakdown cover
Train, bus, tram, air and taxi fares
Hotel accommodation
Meals on overnight business trips

You cannot claim for:

Non-business travel costs
Fines or penalty charges
Travel between home and work (commuting)

If a vehicle is used for both business and personal purposes, you can only claim the business portion of the costs.

Marketing and advertising

You can deduct costs associated with promoting your business, including:

Advertising campaigns
Website costs
Marketing materials
Promotional activities

Client entertainment is specifically disallowed and cannot be claimed as an expense.

Financial and legal costs

Allowable expenses in this category include:

Insurance (business-related)
Bank charges
Professional fees for day-to-day business matters
Accountancy fees

Training courses

You can claim for training courses that are related to your business, such as refresher courses that maintain or update existing skills relevant to your current business activities.

Goods for resale

If your business buys and sells goods, you can deduct the cost of:

Stock
Raw materials
Items you buy to sell on

Working from home

If you use part of your home as an office, you may be able to claim a proportion of costs such as:

Heating
Electricity
Council Tax
Mortgage interest or rent
Internet and telephone use

You need to use a reasonable method to divide these costs between business and personal use. This could be based on the number of rooms used for business or the amount of time spent working from home.

For example, if you have 4 rooms in your home and use one exclusively as an office, and your electricity bill is £1,120 for the year, you could claim £280 (one quarter). If you only work from home one day a week, you would divide this by 7, giving you £40 to claim.

What you cannot claim

Common expenses that are not allowable include:

Client entertainment
Personal expenses or money taken for personal use
Costs with no business purpose
Capital expenses (which must be claimed through capital allowances instead)
Non-business portions of mixed-use expenses

Capital allowances vs revenue expenses

It's important to understand the difference between revenue expenses and capital expenses. Revenue expenses are day-to-day running costs that you can deduct in full from your profit.

Capital expenses involve buying, selling or improving capital assets (such as equipment, machinery or business vehicles). These cannot be deducted as normal expenses but may qualify for capital allowances, which give tax relief in a different way.

Examples of items requiring capital allowances include:

Equipment and machinery
Business vehicles (cars, vans, lorries)
Major alterations to buildings

Some building work may qualify for structures and buildings allowance.

Including expenses in your accounts

All allowable expenses must be properly recorded and included in your company accounts. Keep accurate records and receipts to support your claims in case HMRC queries them.

If you're unsure whether a particular cost qualifies as an allowable expense, contact HMRC or speak to your accountant before claiming it.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.