8 Expenses Most UK Limited Company Directors Miss (And Overpay Tax)

Most limited company directors aren't underpaid. They're over-taxed — because they don't structure pay the way the rules allow. HMRC publishes the allowances. The directors I speak to know about two or three of them. The rest pile up year after year as overpaid PAYE, NI and Corporation Tax.

Here are the eight that get missed most often, the exact rules behind each, and what it adds up to.

It's not about earning more. It's about structuring smarter.

1. The £12,570 tax-free director's salary

The personal allowance is £12,570 for 2026/27. A director who takes a salary at or just below that level pays no income tax and either no Class 1 NI (under the secondary threshold of £5,000) or a small amount of employer NI in exchange for the year counting toward the State Pension.

This isn't a loophole — it's the foundation of how owner-managed companies are structured. The salary is a deductible expense for the company (reducing Corporation Tax at 19% or 25%), while leaving the personal allowance available against any other income. Anything above £12,570 is more efficient taken as dividends, until you hit higher rate thresholds.

The exact optimal number depends on your other income, whether you can claim Employment Allowance, and your CT band. For a clean walk-through and 2026/27 figures, read Optimal Director's Salary 2026/27 and How Much Can I Pay Myself As a Director?.

Why it gets missed: New directors copy what their employer used to pay them and take a £40k+ PAYE salary out of habit.

2. Company-paid mobile phone

A mobile phone provided by the company to a director or employee — contract in the company's name — is a tax-free benefit. No P11D, no Class 1A NI, no income tax. The company reclaims VAT on the bill if VAT-registered.

The key rule (ITEPA 2003 s319): one phone per employee, contract must be between the company and the network. If the contract is in your personal name and the company reimburses you, it becomes a taxable benefit. Switch the contract over.

Why it gets missed: Most founders signed their phone contract before incorporating and never moved it across.

3. Trivial benefits — £300 a year, tax-free

Directors of close companies can receive up to £300 a year in trivial benefits, completely tax-free and outside PAYE. Employees with no director-level cap can receive unlimited trivial benefits as long as each one meets the rules.

The four tests (each benefit, not the annual total):

1. Costs £50 or less (including VAT)
2. Not cash or a cash voucher
3. Not a reward for work or in any employment contract
4. Not provided as part of salary sacrifice

So: a £40 birthday hamper, a £30 wine bottle at Christmas, a £45 meal voucher. Six of those a year for a director gets you to the £300 cap. The company gets Corporation Tax relief on the cost.

Full breakdown: Trivial Benefits — Limited Company Rules.

Why it gets missed: Directors assume "if it's a perk, it's taxable." For amounts under £50, the opposite is true.

4. Annual event / staff party — £150 per head

Section 264 ITEPA 2003 gives every limited company a £150 per head annual event allowance. Spend up to £150 (including VAT) per attendee on an annual social event — Christmas dinner, summer party, away day — and it's tax-free and Corporation Tax deductible.

The rules:

• The event must be annual (can be more than one event if combined total stays under £150)
• Open to all employees (or all at a location, if you have multiple sites)
• £150 is a limit, not an allowance — go to £151 and the whole lot becomes taxable
• Partners/spouses count as attendees, doubling the per-director allowance to £300

For a solo director with a partner, that's £300 of tax-free hospitality every year. Restaurants, theatre tickets, a weekend away framed as the annual event — all qualify if the structure is right.

Why it gets missed: Founders think "I don't have staff" and skip it. You're the staff. You count.

5. Employer pension contributions

The single most powerful lever in the list. Employer pension contributions are:

• A deductible expense for the company (reducing CT at 19–25%)
• Not a P11D benefit (no income tax on you)
• Not subject to employer NI (saving 15% from April 2025)
• Not counted against your personal annual allowance the same way as employee contributions

The annual allowance is £60,000 (tapered at very high incomes), with three years of carry-forward available. A director paying themselves a £12,570 salary and £30,000 in dividends can have the company contribute £20,000+ to their pension and save roughly £5,000 in Corporation Tax while moving the same money into a tax-advantaged wrapper.

The catch is the "wholly and exclusively" test — the total package (salary + pension + benefits) has to be commercially justifiable for the work you do. For owner-directors who actively run the business, this is rarely a problem.

Deep dive: Pension Contributions From a Limited Company.

Why it gets missed: Founders see "pension" as a personal decision and pay in from post-tax income, missing the corporate route entirely.

6. Relevant life insurance

A relevant life policy is a death-in-service life insurance plan paid for by the company. It pays out tax-free to your family if you die during the term.

The structure:

• Premiums are a deductible expense for the company (CT relief)
• Not a P11D benefit (no income tax on you)
• No employer NI on the premiums
• Payout goes into a discretionary trust, outside your estate for inheritance tax

Compare that with paying for the same policy personally: you'd be paying premiums from post-tax, post-NI income. For a higher rate taxpayer, a relevant life policy is roughly half the effective cost of a personal life insurance policy with the same cover.

The policy has to be set up correctly from day one — it can't just be a normal life policy in the company's name. You need the right product (insurers like Aviva, Legal & General, Vitality offer specific "relevant life" plans) and a discretionary trust.

More: Life Insurance Through a Limited Company.

Why it gets missed: Directors don't know the product exists, or buy personal life cover by default.

7. Private medical screening and eye tests

Not the same as full private medical insurance (which is a P11D benefit). Two specific medical costs are explicitly exempt:

Annual health screening / medical check-up: One per employee per year, fully tax-free under ITEPA s320B. Includes a comprehensive private health screen at a clinic like Bupa, Nuffield or Vitality.

Eye tests and corrective glasses for VDU work: If you use a screen for work (every director), the company can pay for eye tests and the portion of glasses prescribed for screen use, tax-free under the Health and Safety (Display Screen Equipment) Regulations.

Private medical insurance itself is taxable as a P11D benefit, but for many directors the after-tax cost via the company is still lower than buying it personally — and the company gets CT relief on the premium. Full comparison: Private Health Insurance Through a Limited Company.

Why it gets missed: Conflated with general "private healthcare" which is taxable.

8. Salary sacrifice — cycle to work, EV cars, additional pension

Salary sacrifice lets you swap part of your salary for a benefit, saving both income tax and NI on the sacrificed amount. Three structures still work post the 2017 reforms:

Cycle to work: Up to £1,000 (or unlimited via accredited schemes) on a bike and safety equipment, paid for by the company and "rented" to you via a salary deduction. Tax and NI savings of roughly 32–42% on the cost. Details: Cycle to Work Scheme — Limited Company.

Electric company car: The benefit-in-kind rate on a fully electric car is 3% in 2026/27 (rising 1% a year). A £40,000 EV creates a BIK of £1,200/year. Compare that to taking £40,000 from the company as dividends to buy the car personally — you'd pay tens of thousands in dividend tax first. Compare options: Company Car vs Mileage Allowance.

Additional employer pension contributions: As covered in #5, but specifically using salary sacrifice means the saved employer NI (15% from April 2025) can be redirected into the pension too.

Why it gets missed: Cycle-to-work has a reputation as "for employees not directors" — it works for you too. EVs feel like an enterprise benefit — they're often most effective for solo directors.

What it adds up to

For a single-director limited company with profits in the £60k–£100k range, stacking these allowances typically saves:

That's structuring, not avoidance. Every one of these is in HMRC's manuals.

How AccountsOS handles this

Finn — the AI CFO inside AccountsOS — knows every one of these allowances. Ask in chat: "Am I making the most of my director allowances?" and Finn will check your salary level, your pension contributions for the year, what you've expensed as trivial benefits, and whether you've booked an annual event. If you're under-using any of them, Finn tells you, with the exact numbers for your company.

It also tracks the deadlines that turn these into a problem if missed (P11D filings if you accidentally tip into taxable benefits, RTI submissions for the salary).

Start with the Salary and Dividend Optimizer to set the floor, then layer the rest from this list. Or chat with Finn and ask what you're missing.

Want the full picture of what's deductible? See Allowable Expenses — Limited Company Complete List.

Tax rates and thresholds are correct for 2026/27 as of publication. Always confirm against your specific circumstances — these notes are general guidance, not personal tax advice.