To help be more tax efficient (and let’s admit, nobody wants to be paying more tax than they have to!), Limited companies are able to claim tax relief on certain costs through business expenses, which helps to reduce your profits and Corporation Tax payments and therefore leaving you with a much better looking take-home pay. However, you can only claim expenses that are on HMRC’s green light list, and you also have to keep accurate records for your expenses for at least 6 years so they can be accounted for correctly.
Your company’s expenses can be paid directly from the business bank account or they can be paid by you personally – this will be a reimbursed from company funds, which you must keep records of every time you are reimbursed when you have paid for business expenses out your own pocket. Employees are also able to claim expenses, most company’s will have an expenses policy for this.
The primary rules of Limited Company business expenses
- You can’t claim for expenses that are planned to be used for business and personal use.
- You can only claim for expenses that are exclusively used during the everyday running of your business
- Business expenses can be paid from the company’s business bank account or can be paid personally which will then later be reimbursed by the company
- Most limited company expense can be offset against your company’s corporation tax, however there are some exceptions.
- Make sure you keep a thorough record of business expenses and running costs, ensure to include VAT receipts, just so you are able to justify and prove your actions if your business expense claims are ever queried or knocked back by HMRC.
HMRC is very clear on the golden rule that a business expense must be necessary and wholly and exclusively incurred as part of the daily running of your business.
There are 2 questions you need to ask yourself to know whether or not something is a business expense.
- “Did I buy this service/item because I need it for my business?” If yes, then this is a business expense.
- “Is the service/item used solely for business?” If yes, then this is a business expense.
Typical expenses you can claim as a limited company:
- Business insurance
- Health check costs
- Eye test costs
- Marketing, advertising and PR costs
- Accommodation costs
- Childcare costs
- Bank charges
- Home office expenses
- Gifts benefits for employees or clients
- Professional subscription costs
- Telephone and broadband costs
- Mobile phone contracts
- Annual staff party expenses
- Travel and parking costs
- Professional development expenses
- Start-up costs
- Entertainment expenses (with exceptions)
- Office supplies and equipment
- Professional fees
- Company car
- Hire purchase agreements
However, listed above there are many that come with exceptions, loopholes and complexities. For more information on claiming business expenses, visit the GOV website here.
If you would like to discuss your business expenses with our team, please get in touch by calling 01922 922050 or email us at email@example.com.