Running a limited company involves many costs, from software and insurance to staff wages and professional fees.
Some of these expenses can reduce the company’s taxable profit. However, a payment does not automatically qualify simply because it was made from the business bank account.
The cost must normally have a genuine business purpose, and personal use may need separate treatment.
A limited company can generally claim costs that are incurred for its business activities. Common examples include:
- Staff salaries
- Office costs
- Business insurance
- Accountancy fees
- Advertising
- Business travel
- Software
- Professional subscriptions
The correct treatment depends on the type of cost, its purpose and whether anyone receives a personal benefit.
An allowable expense is a business cost that can normally be deducted when calculating taxable company profit.
If a company receives £100,000 in taxable income and has £25,000 of allowable revenue expenses, its taxable profit may be reduced before Corporation Tax is calculated.
This is a simplified example. Capital purchases, disallowed expenses and other tax adjustments may receive different treatment.
Every cost should be reviewed using the company’s actual circumstances.
Allowable office costs may include:
- Office rent
- Business rates
- Electricity and heating
- Cleaning
- Office furniture
- Stationery
- Printing
- Postage
If you work from home, the company may be able to pay an appropriate amount towards additional household costs. The arrangement must be reasonable and supported by suitable records.
Many companies rely on digital tools to manage everyday work.
Potentially allowable costs include:
- Accounting software
- Customer-management systems
- Cloud storage
- Website hosting
- Business email services
- Cybersecurity tools
- Project-management software
- Video-conferencing subscriptions
Where software also has personal use, the position may need further review.
