We are often asked by clients what expenses can be claimed from a limited company and which expenses can be used in general terms to reduce the amount of corporation tax payable to HMRC. The answer to the question is fairly simple and all legitimate business expenditure can be used to offset business income when calculating annual profit and in turn the company’s corporation tax liability.
There are a number of rules relating to what you can and can’t claim as reasonable business expenses. The tax man will focus on the nature of the expense and any personal benefit. Business expenses should be wholly relating to the business and business related activities.
Having said that, there are a large number of expenses that can be offset your corporation tax bill. HMRC list a number of these expenses here: https://www.gov.uk/expenses-and-benefits-a-to-z
Some of the more obvious day-to-day running expenses are as follows:
1. Business travel and accommodation
2. Business mobile phone and business calls
3. Computer software
4. Postage and stationery
5. Office rent and rates
6. Accountancy and legal fees
7. Use of your home as an office
Most of these expenses are generally paid through a business bank account but some are paid personally by directors too.
If you pay for an expense personally, you will need to be reimbursed by your company for the full cost from the company bank account. You must always retain receipts and/or invoices which demonstrate that the expense is a genuine business expense.
You must always remember to separate business expenses from private expenses but sometimes this definition can be a little blurred. A business trip overseas can be a legitimate business expense but where the overseas trip is extended to include a week on the beach then it is far more likely to be seen as a private (non-business) expense.
Other useful resources that you may find interesting and may help your further understanding of business expenses are as follows:
1. HMRC Home Office Guidance: http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm