What expenses can I claim for a limited company?
If you are in business then there aren’t many weeks that go by without thinking about tax and understanding what you can and can’t claim is usually top of everyone’s list of questions.
In this post, we’re looking at a few of the expenses that are allowable against corporation tax and for directors and employees. Naturally, this isn’t a comprehensive list. Tax statutes run to thousands of pages so with limited space we’ve decided to focus on the most common things that you may come across.
Corporation tax or personal tax?
For directors of businesses, especially smaller concerns it is often important to understand what you can claim through your company rather than taking the money and paying tax and NICs on the cash.
It’s also good to know if you are in a larger business the kind of benefits you can give people without them or the business incurring extra corporation tax.
It doesn’t matter whether you pay for the expenses directly from the company bank account or you reimburse people for money they have paid but like most things tax, you must keep accurate records of any expenses.
The wholly and exclusively rule
This is the first rule to remember when you are looking to claim limited company expenses against tax. Put simply, if the expenses aren’t wholly and exclusively for business use then it is unlikely to be acceptable to claim it against tax.
A good example here is a phone bill. If your company pays for a home phone bill then it is reasonable to assume that some of the use will be personal and some business. If it’s not possible to divide the usage, especially with the line rental element, then it’s not claimable. This goes for any expense that has a mixed business and personal use so this is probably the first test to apply.
If you can reliably separate the costs into business and personal then you can claim the business proportion so in our example you could claim only the cost of business calls and not the line rental.
Benefits you can claim
- Car mileage (for business)
- Eye tests
- Annual health check-ups
- Personal work equipment
- Childcare vouchers
- Professional subscriptions
- Technical or management courses
- Small gifts
- Company staff parties
There are some benefits that you can claim even though they are personal in nature. The first and probably most common would be car mileage. There are lots of rules around car usage but the most important one to remember is the wholly and exclusively one. If an employee uses their own car to drive to a customer’s place of business then that is allowable, if they are using their car to simply drive to their place of work then that is not.
See our Expense Policy Toolkit for more information about vehicle expenses.
When you employ people HMRC gives you some benefits that you can provide free of tax. Probably the biggest would be pensions and given that successive governments have made great efforts to get us all to invest in our own futures this is understandable. If you make payments into an employee’s pension then the expense is usually tax-free.
You can also pay for eye tests for your employees and a pair of glasses if they need them for work. Perhaps they need a special pair of spectacles (the same goes for contact lenses) to cope with the glare of monitors or to see display units. Employers can pay for employees to have a health check-up once a year without any NIC or tax charge and if a sick staff member needs medical care to enable them to return to work then you can spend up to £500 on things like physiotherapy to get them back in running order. Any adjustments you need to make like buying special seating, adjustable desks or different IT equipment are also tax-deductible.
Childcare can be expensive and can often be a cause of very good employees choosing not to come back to work. A limited company can claim tax relief on childcare costs via childcare vouchers up to a total value of £243 each month, making this a valuable tax-free benefit to offer.
If you or your employees pay professional subscriptions for membership of organisations related to their work then the employer can reimburse these completely tax-free. In a similar vein, courses that are aimed at developing the skills of the employee are also claimable. If an employee pays for courses like management skills, technical competency or career development then the business can choose to reimburse these with no tax charge.
Have a little fun
The expenses you can claim as a limited company aren’t restricted to boring stuff like pensions and eye tests, there is room in the tax statutes to have a little fun!
Companies can give gifts to employees that are small in nature (called a trivial benefit) and the good news is that they are tax-free and you don’t have to report them. Designed to cover things like birthday or Christmas presents the gift has to be less than £50 and can’t be as a reward for performance in their work. It can’t be cash or a voucher either and it mustn’t be in their contract that they will receive it. So if you like to send a nice bunch of flowers and a bottle of bubbly on people’s birthday then carry on - just don’t go over £50!
Everyone loves a party and limited companies can spend up to £150 per head, per year on shindigs for their employees. This is a cumulative total so you could have a summer BBQ and a Christmas party but don’t go over the £150 per person mark or you’ll be paying tax.
If you spend a large amount of money but it’s not clear how much has been spent on people individually (if you hire a band for example) then it’s fine to divide it between the number of employees that attend to get an average cost. Although business entertaining is generally not claimable you can spend money on your staff as long as it is a general event and anyone can attend. This means that if you have a monthly ‘Pizza Tuesday’ or a ‘Beer Friday’ then this is fine as long as it is open to all. You can also provide food and a taxi home if you have employees who are going above and beyond and working into the wee hours.
Tax on expenses - sometimes simple, sometimes not!
As we said right at the start of this piece, tax is a very complicated subject so it pays to get it right. The two overarching rules to remember when you are thinking about tax and expenses are the ‘wholly and exclusively’ rule and remembering to keep proper records. If you can prove that something was done wholly and exclusively in the course of business and you have the records to prove it then you are in a good position.
But there is one further rule that it is important to consider - if you are unsure take advice. It’s always better to ask someone rather than guess. You can contact HMRC or ask you tax advisor or audit firm if you are unsure.
And if you want a great way to make sure that you’re keeping accurate records and reducing the time it takes to process your expenses then why not take a look at Access Expense?
Access Expense, our leading expense management software, allows you to deep dive into your staff expense claims with built-in analytics, reports and dashboards so you have full visibility of your team. Watch our online product tour and see how Access Expense can work for you.