A Guide to Claiming Limited Company Expenses

As a limited company director, the flexibility and freedom of being your own boss can hold a strong appeal. Working as a self-starter can help encourage creativity, spur competition in the market and establish a new industry standard.

You should always keep up-to-date with the latest HMRC guidelines, including claimable expenses, or employ an accountant specialising in limited company accounting. By claiming appropriate expenses, you can minimize tax liability and maximize take-home pay. Taking advantage of claiming relevant expenses can also cut your Corporation Tax bill. Here's a closer look at how:

What is the Flat Rate VAT Scheme?

There are a large variety of expenses which are claimable for limited companies, including access to schemes such as the Flat Rate VAT scheme. The Flat Rate VAT Scheme allows small businesses to easily calculate and record tax obligations to HMRC. It allows you to keep the difference between the VAT charged to customers and VAT paid to HMRC.

To qualify for the scheme, you must be VAT registered and have a taxable turnover of £150,000 or less, excluding VAT. You can use the scheme if your annual taxable turnover does not exceed £230,000. The scheme can be beneficial to small businesses as it simplifies the accounting process and saves time otherwise spent on calculating tax.

Limited Company expenses

There are a series of expenses which are claimable for limited company contractors; however, the guidelines set by HMRC state that the expense should be ‘wholly, exclusively and necessary’ for the limited company in order to be claimable. As a result, you should hold on to evidence, such as invoices and receipts. These can be easily scanned and uploaded to your business' accountancy software, such as FreeAgent or Xero.

Here's a closer look at each expense type and the regulations for claiming under a limited company:

Accountancy fees

Accountancy fees are an acceptable expense if occurred solely from work carried out for the limited company and not for a dual purpose, such as personal use. It's important to note that a self-assessment is classed as personal use so this will not be classed as an allowable expense.

Business Travel

If you're travelling to a temporary workplace and expect to be there for less than a total duration of 24 months e.g. for training at a client’s site, the expense is claimable. You can claim travel costs incurred through different modes of transport, including public transport, air fare, taxi and car. This includes mileage, fuel, insurance and general wear and tear. If you're driving a company car, you're only able to claim for fuel.

Subsistence

If you're on a work-related visit, you can claim for the cost of a meal. However, you can't claim for separate ingredients purchased to prepare your meal. If you're staying overnight at a temporary workplace, you can claim £5 per night or £10 per night if overseas. This is to cover incidental costs, e.g. laundry, purchasing a newspaper, etc.

Accommodation

Accommodation costs are deductible for the purpose of Corporation Tax. If you're staying at your permanent residence, you can't claim any expenses relating to accommodation. Family members shouldn't reside at the temporary accommodation as this serves a dual purpose.

Mobile phones

If you have a work mobile phone, you can claim for the handset, line rental and call costs. To claim the cost as an expense, the contract should be between the limited company and the provider and payments should be made from the company bank account.

Internet

You can claim for internet usage, providing that private use is not significant. Similarly to claiming for a mobile phone and mobile phone usage, the contract should be between the provider and limited company and payment should be made from the limited company.

Home office

If you're using parts of your home as an office, you may be able to claim a flat rate allowance. This is up to £4 per week and £18 per month and you may be able to claim for office equipment and office furnishings. The home office must be legitimately used for work purposes and you must be able to prove that you utilize the room for this purpose.

Business entertainment

Hosting entertainment events for staff members and prospective clientele is claimable. However, it isn't deductible for Corporation Tax purposes. This entertainment must be instrumental in winning new business and attracting new business.

Annual events

The cost of annual events can be claimed back if the following conditions are met:

• The event is open to all members of staff
• If one partner is invited, all partners should be invited
• The cost must not exceed £150 including VAT per head

If more than one event of this nature takes place, it shouldn’t exceed the allowance per head. If you do go over the allowance, note that the full amount will be taxable.

As a limited company director, it's important to be aware of claimable expenses and non-claimable expenses to operate efficiently and at a low cost so that you can sustain the financial health of your business. By working closely with your accountant, you can structure your income and educate yourself on the latest HMRC guidelines on tax relief for smaller businesses.

Operating through a limited company can be rewarding, and by simplifying bookkeeping you can free up the time to focus on building and expanding your small business.

About the Author

Keith Tully is a partner at RBR Advisory, a business advisory platform dedicated to supporting businesses in financial distress. With over 25 years of experience in the field, Keith specializes in providing bespoke turnaround and restructuring solutions to businesses of all sizes and sectors across the UK.