From phone bills to software to travel, every company has operating costs to manage. But which of these are allowable expenses that can be claimed by a limited company?
Limited business owners can claim tax relief on these overheads through business expenses. This allows your organisation to be more tax efficient, cutting down your Corporation Tax Payment and profit.
However, allowable expenses for a limited company can often be unclear. In this article, we’ll look at some ways to help you establish a solid accountancy plan.
If you’re not confident yourself, it’s best to seek the help of a reputable accountant such as Accountants East London that can assist you when it comes to working out your limited company expenses.
What are allowable expenses?
Allowable expenses for a limited company refer to expenses limited companies can claim to help reduce their tax bill.
As a business, you can deduct allowable business expenses from your overall income to determine your organisation’s profit and the cost of tax you’ll need to pay.
If an expense is deemed allowable, it can be deducted from your revenue. Costs such as salaries, business insurance and office equipment all count as allowable expenses.
If you combine a business trip with a personal holiday, the days used for business can be tax-deductible. But any money spent on entertaining clients or gifts isn’t usually allowable, neither is it considered a genuine expense of a company.
If your company provides benefits to employees – such as health insurance or expenses for mileage and other travel costs – you may need to inform HMRC and pay tax and national insurance.
List of allowable expenses for a limited company
Wondering what expenses you claim as a limited company? Many costs involved in the set-up of your limited company – and the general maintenance and the running of your company – count as allowable business expenses.
- The initial costs for developing your limited company
- Costs for premises, utility bills and rent
- Salaries and employee costs
- Expenses used to purchase raw materials or stock
- Office expenses such as stationery, phone bills, furniture
- Travel and accommodation expenses for business trips (this doesn’t include commuting costs)
- Legal and financial costs such as accountancy fees and professional indemnity insurance premium
- Advertising and marketing expenses
- Annual social events such as Christmas parties that cost under £150 per employee (generally, business entertainment costs are not tax-deductible)
Capital expenses for a limited company
If you intend to buy an asset for your company – something you plan to keep and use within your business, such as a work vehicle – you can claim capital allowances on your tax returns.
You’ll be able to deduct the total value of the item purchased before your tax using your annual investment allowance.
Allowable expenses for employees
It may be beneficial to have an employee expenses policy in place so you and your employees know which expenses are reimbursable and which are tax-deductible.
You’ll need to make sure you have expenses receipts, where possible, and that you have a clear record of expenses.
Conclusion: Allowable expenses for a limited company
In short, allowable expenses for a limited company refers to genuine business related expenses that can be claimed to help reduce their tax bill.
This includes: setting up your company, salaries, business insurance, office equipment, general maintenance, company running costs and even certain aspects of business trips.