Common limited company expenses

Common limited company expenses

If you own a limited company, there are some expenses that you incur while running the business that can be set against your tax bill. There are strict rules regarding what counts as allowable expenses, however, and it’s important to understand what you can and can’t claim for.

Important rules regarding limited company expenses

There are a few important ground rules that you should bear in mind when it comes to your expenses. These include the following:

  • You can only claim expenses for things that have been incurred “wholly, exclusively and necessarily” in the course of carrying out your business. For contractors operating under the structure of a limited company, this means during the course of your contracting work.
  • This also means that you cannot claim for any expenses with “duality of purpose”. Essentially, this means anything that you use both outside and in work.
  • Keep all relevant receipts and paperwork in case you are later challenged. You may need to provide proof of the expenses.
  • The majority of allowable expenses can be offset against any Corporation Tax liabilities the business has. There are some exceptions, however, such as “business entertainment”.

Some common limited company expenses

The things that could count as expenses can vary depending on your role and what you need in order to carry out your business. They will generally need to meet the rules of thumb given above.

There are also some standard and common expenses for limited company owners, however, which could include:

  • Salaries of all employees – for contractors, this will usually just be you but could include a spouse.
  • Employers’ National Insurance Contributions (NICs) on any salary that is above the current NIC threshold.
  • Business stationary, postage, printing costs, etc.
  • Equipment such as computers and hardware.
  • The costs of training courses that relate directly to the business.
  • Relevant business insurance such as Professional Indemnity insurance.
  • Bank account charges in business accounts.
  • Executive pension scheme contributions.
  • Magazine subscriptions that are directly related to your work.
  • HMRC has a list of allowed groups. Subscriptions to these professional organisations are allowable expenses.
  • Accommodation costs if working away from home – but only if your contract has run for less than 24 months in the same location.
  • Food and drink (subsistence costs) while away from home – subject to the same 24-month rule, as above.
  • Telephone and broadband contracts that are in your company’s name. Also, the costs of individual business-related calls, even if they have been made from a landline or mobile that you also use for personal calls.
  • A percentage cost of household bills if you work from home. Alternatively, you can claim a flat rate for using your home as an office of £4 per week or £18 per month.
  • Costs for travel and parking when travelling to sites that are not your regular place of work. If using your own car, you can claim a mileage rate of 45p per mile for the first 10,000 miles. It drops to 25p per mile for each mile after that.
  • Business accountancy fees (not including charges for your own personal tax return) and professional fees such as hiring a solicitor for business purposes.
  • Medical checks and eye tests for employees.
  • Advertising and marketing costs.
  • Company events such as a Christmas party, but there is a £150 limit on how much you can claim for this.
  • Gifts to business clients worth up to £50 each.
  • Essential administration such as the fee for your annual Confirmation Statement with Companies House.

There are some other things that you may be able to claim but not via your limited company’s Corporation Tax.

These could include the costs of entertaining clients and the initial costs of forming your company, if you paid for it personally. This incorporation will count as a one-off “capital cost”.

Other things to bear in mind

If your contracting is for a private sector client and you are deemed to fall within IR35, you might still be able to claim a fixed amount equal to 5% of the turnover of the contract to help offset the costs of running a limited company. This is not available if your contract is within the public sector.

As well as this allowance, you can still claim certain expenses such as travel, subsistence and pension contributions. These are known as Section 198 expenses.

You may be able to claim for some expenses that you paid for personally before setting up your limited company. These are known as pre-trading expenses.

If your company pays for certain things that you benefit from personally, such as gym memberships, you may have to pay tax on these “benefits in kind”.

The above information is not exhaustive. Tax is a complicated issue, and you might consider consulting an accountant to address any specific concerns.

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