The Complete Guide to Business Expenses for UK Limited Companies 2025/26

As a UK limited company director, business expenses are one of your most powerful tools for reducing your tax bill. Every legitimate expense your company incurs reduces its taxable profit, which directly lowers the Corporation Tax you owe. At the small profits rate of 19%, a 1,000 expense saves your company 190 in tax. If your profits fall in the marginal relief band (between 50,000 and 250,000), the effective saving is even higher at approximately 26.5p per pound.

Yet many directors leave money on the table. Some are overcautious, afraid to claim expenses they are perfectly entitled to. Others miss categories entirely because nobody told them what qualifies. A few go the other direction and claim personal items, risking penalties in an HMRC enquiry. This guide helps you get it right.

We cover every major expense category relevant to UK limited company directors with revenue between roughly 50,000 and 500,000. Each section includes specific rates and allowances for the 2025/26 tax year (6 April 2025 to 5 April 2026), worked examples showing the actual tax savings, and links to our detailed articles, calculators, and expense- specific guides.

If you are looking for a broader overview of your tax obligations as a limited company director, start with our complete UK limited company tax guide. For details on any specific expense type, browse our library of 64 individual expense guides.

Throughout this guide, we use the term "allowable expense" to mean an expense that HMRC permits you to deduct from your company's taxable profits. The formal test for this is covered in the next section.

Before diving into specific categories, you need to understand the single most important principle in UK business expense law. Section 54 of the Corporation Tax Act 2009 states that expenses are deductible only if they are incurred "wholly and exclusively for the purposes of the trade". This is the test HMRC applies to every expense your company claims, and it is the test you should apply before putting anything through your books.

What "Wholly and Exclusively" Actually Means

The phrase has been tested extensively in tax tribunals. Here is what it means in practice:

• Wholly: The entire amount of the expense must be for business purposes. If you buy a 600 printer for your office and use it only for business, the full 600 is deductible. If you buy a 600 printer and your children use it for schoolwork half the time, you can only claim the business proportion.
• Exclusively: The purpose of the expense must be business, not personal. A suit you buy for client meetings is not deductible because HMRC considers it suitable for everyday wear (the "duality of purpose" rule). Work- specific protective clothing or branded uniforms, however, are deductible because they have no personal use.
• For the purposes of the trade: The expense must relate to the trade your company actually carries on. A software consultancy cannot claim fishing equipment unless it is in the fishing business.

The Duality of Purpose Rule

This is where many directors get caught out. If an expense has a dual purpose, both business and personal, it fails the "exclusively" test and is not deductible at all, unless you can clearly separate the two elements.

The classic example is a business trip where you add personal holiday days. The business travel and accommodation costs for the working days remain deductible. The extra days of hotel, meals, and activities are not. The key is clear separation and documentation.

Some expenses can be apportioned. A mobile phone used 80% for business and 20% personally can be claimed at 80%. A room in your home used as an office can have a proportionate claim based on floor area and hours of use. HMRC accepts reasonable apportionment where the business and personal elements can be identified separately.

What HMRC Actually Looks For

In practice, HMRC focuses on a few areas when reviewing expense claims:

• Pattern recognition: Expenses that look personal, such as supermarket spending, clothing shops, entertainment venues
• Proportionality: Is the level of expense reasonable for the size and nature of your business? A sole consultant spending 20,000 on travel will get more scrutiny than a sales-heavy business spending the same amount
• Documentation: Can you explain and evidence the business purpose of each expense? The burden of proof is on you, not HMRC
• Consistency: Regular, predictable expense patterns are less likely to trigger questions than sudden spikes or unusual one-off items

Worked Example: The Tax Savings

Suppose you identify 5,000 in legitimate business expenses you have not been claiming. Here is the impact on your tax bill:

That 5,000 in expenses saves you between 950 and 1,325 in Corporation Tax depending on your profit level. Over a full financial year, the difference between a director who claims diligently and one who does not can easily run into thousands.

For a deeper look at all the categories of deductible costs, read our complete guide to allowable business expenses and our breakdown of tax deductions for limited companies.

Whether you work from a dedicated office, a co-working space, or your spare bedroom, the costs associated with your workspace are among the most significant deductions available to you. The rules differ depending on your setup, so understanding which method applies to your situation is essential.

Rented Office or Co-working Space

If your company rents a dedicated business premises, the costs are straightforward. You can claim the full amount of rent, business rates, utilities (gas, electricity, water), contents insurance, maintenance and repairs, cleaning, and security. If your company holds the lease, these are all direct business expenses deductible against Corporation Tax in the period they are incurred.

Co-working space memberships and hot-desk fees are equally deductible. Whether you pay monthly for a WeWork membership or book day passes at a local hub, the full cost is an allowable expense provided the space is used for business.

Working From Home: The Two Methods

The majority of micro-business directors work from home, at least part of the time. HMRC provides two methods for claiming the associated costs, and you should choose whichever gives you the larger deduction.

Method 1: The Simplified Flat Rate

Your company can pay you a flat rate allowance based on the hours you work from home each month. No receipts or detailed calculations are needed. For 2025/26, the rates are:

Note: HMRC also permits a simpler flat rate of 6 per week (equivalent to 26 per month or 312 per year) without needing to track hours. Many directors use this method for simplicity. The payment is tax-free to you personally and deductible for the company.

Method 2: Actual Costs (Proportionate Claim)

If your actual household costs are significant, the proportionate method usually yields a much higher deduction. The calculation works like this:

1. Add up your total household running costs: rent or mortgage interest (not capital repayments), council tax, gas, electricity, water, home insurance, and broadband
2. Calculate the business proportion: This is typically based on the number of rooms used for business divided by total rooms (excluding bathrooms, kitchen, and hallways), then adjusted for the proportion of time the room is used for business
3. Claim that percentage: The company reimburses you for the business proportion, which is tax-free to you and deductible for the company

Worked Example: Actual Costs Method

You live in a 3-bedroom house and use one room exclusively as an office during business hours (roughly 8 hours per day, 5 days per week). Your annual household costs are:

• Rent: 12,000
• Council tax: 1,800
• Gas and electricity: 2,400
• Water: 400
• Home insurance: 300
• Broadband: 480

Total: 17,380. The office is 1 room out of 5 usable rooms (3 bedrooms plus living room plus dining room) = 20%. Adjusted for time: you use it approximately 40 hours out of 168 hours in a week = roughly 24%. Using the more conservative figure of 20%, your annual claim is 17,380 x 20% = 3,476.

Compare this with the flat rate of 312 per year. The actual costs method gives you a deduction more than ten times larger. At 19% Corporation Tax, that is an extra 601 in tax savings compared to the flat rate.

For the full calculation walkthrough, see our working from home tax relief guide and home office expenses for limited companies.

Office Furniture and Equipment

Desks, chairs, monitors, shelving, and other furniture for your business workspace are fully deductible. If you work from home, these items are deductible in full provided they are used wholly and exclusively for business. An ergonomic office chair for your home office qualifies. A sofa for your living room does not, even if you sometimes work from it.

Broadband and Telephone

If your company pays for a dedicated business broadband line, the full cost is deductible. If you use your home broadband for both personal and business purposes, you can claim the business proportion. Most directors claim between 50% and 75% depending on their usage pattern. A reasonable estimate is acceptable to HMRC provided it reflects reality.

Travel expenses are one of the most valuable and most misunderstood categories. The rules depend on whether you are using a personal vehicle or a company vehicle, whether the journey is from a permanent or temporary workplace, and whether you are an employee or self-employed. For limited company directors, the most common situation involves using a personal car for business journeys and claiming mileage.

The Fundamental Rule: Business Travel vs Commuting

Your daily journey from home to a permanent workplace is commuting and is never deductible. A permanent workplace is where you regularly attend to perform the duties of your employment. If you work from home and your home is your only place of work, then every journey to a client site, meeting, or supplier is business travel and fully deductible.

If your company has a registered office that is also an actual workplace (not just a registered address), journeys from home to that office are commuting, but journeys from that office to client sites are business travel.

Mileage Allowance Payments (MAPs)

When you use your own personal car for business journeys, your company can reimburse you at HMRC's approved mileage allowance payment (MAP) rates. These are tax-free to you and deductible for the company. The 2025/26 rates are:

Worked Example: Mileage Claim

You drive 8,000 business miles in the 2025/26 tax year using your personal car. Your claim is:

• 8,000 miles x 45p = 3,600

This 3,600 is tax-free to you personally and saves the company 684 in Corporation Tax at 19%. If you drove 14,000 business miles, the calculation would be:

• First 10,000 miles x 45p = 4,500
• Remaining 4,000 miles x 25p = 1,000
• Total claim: 5,500 (saving 1,045 in CT)

Use our mileage calculator to work out your specific claim amount.

Company Car vs Personal Car

If your company buys or leases a car, the tax treatment is quite different. The company gets capital allowances on the purchase price (or can deduct lease payments), but you as the director face a benefit-in-kind (BIK) tax charge based on the car's list price and CO2 emissions. For most micro- business directors, using a personal car with mileage claims is simpler and often cheaper overall.

The exception is electric vehicles. The BIK rate for pure electric cars is just 2% for 2025/26, making a company electric car extremely tax-efficient. A car with a list price of 40,000 would generate a BIK of just 800, costing a basic-rate taxpayer only 160 per year in additional tax. Meanwhile, the company gets 100% first-year capital allowances on electric vehicles, deducting the full purchase price from profits in year one.

For a detailed comparison, see our company car vs mileage allowance guide and electric car through a limited company guide.

Parking, Tolls, and Congestion Charges

Business-related parking fees, road tolls, and congestion charges are deductible in addition to your mileage claim. They are not included in the mileage rate. Keep the receipts or payment records. Parking fines and speeding tickets, however, are never deductible regardless of whether they were incurred on a business journey.

Public Transport

Train tickets, bus fares, taxi fares, and flights for business purposes are fully deductible. You can claim the actual cost of the ticket. First-class travel is deductible if it is reasonable for your business, but HMRC may question extravagant spending. Keep all tickets and booking confirmations.

Subsistence (Meals While Travelling)

When you are away from your normal place of work on business, you can claim reasonable meal costs. HMRC does not set specific limits for limited company directors, but the expenses must be reasonable. A sandwich and coffee during a business trip is fine. A three-course meal at a Michelin restaurant for yourself alone would attract questions.

Note that subsistence only applies when you are travelling away from your normal place of work. Lunch near your regular office or home office is not deductible, as HMRC considers eating to be a personal activity regardless of where you work.

The 24-Month Rule for Temporary Workplaces

A workplace is treated as temporary (meaning travel to it is deductible) if you attend for a limited duration or for a temporary purpose. However, if you attend the same location for more than 24 months, or you expect to at the outset, it becomes a permanent workplace and travel to it is no longer deductible.

This is particularly relevant for contractors who are placed at a single client site for an extended period. If your contract is for 18 months, the travel is deductible. If the contract is extended to 30 months, travel stops being deductible from the point you know the placement will exceed 24 months. Read our mileage allowance FAQ for more detail on this.

Technology spending is often one of the largest expense categories for micro-business directors, particularly those in consulting, software, design, and other knowledge-based industries. The good news is that the UK has some of the most generous tax reliefs in the world for business equipment purchases.

Revenue vs Capital: Why It Matters

The tax treatment depends on whether an item is a revenue expense (consumed in the period) or a capital expense (an asset with lasting value). Revenue expenses are deducted from profits immediately. Capital expenses are not directly deductible but can qualify for capital allowances, which achieve a similar effect.

• Revenue expenses: Software subscriptions, SaaS tools, domain names, web hosting, consumables, ink cartridges, cables, and accessories. These are fully deductible in the year you pay for them.
• Capital expenses: Laptops, desktop computers, servers, monitors, printers, phones, tablets, and other equipment with a useful life of more than one year. These qualify for capital allowances.

Annual Investment Allowance (AIA)

The AIA allows your company to deduct the full cost of qualifying plant and machinery in the year of purchase, up to a limit of 1,000,000 per year. For virtually every micro-business, this means all equipment purchases are effectively deductible in full immediately.

Qualifying items include computers, phones, tablets, monitors, printers, office furniture, tools, and virtually all tangible business equipment. The AIA does not apply to cars (which have their own capital allowance rules) or items received as gifts.

Full Expensing for Companies

Since April 2023, incorporated businesses can also claim full expensing (100% first-year allowance) on new qualifying plant and machinery without the 1,000,000 cap. This was made permanent from April 2024. In practice, for micro-businesses, the AIA and full expensing achieve the same result, but full expensing provides an additional safety net for very large investments.

Capital Allowance Rates Summary

Common Technology Expenses

Here is a practical list of technology costs most micro-business directors incur, with their typical treatment:

• Laptops and desktops: Capital expense, but 100% deductible under AIA. A 1,500 MacBook Pro reduces your CT bill by 285 (at 19%)
• Monitors, keyboards, mice: Revenue expense or AIA. Fully deductible in the year of purchase
• Mobile phones: One phone per employee or director is a tax-exempt benefit. The company can buy it and the contract without creating a benefit-in-kind charge. Second or additional phones lose this exemption
• Software subscriptions: Revenue expense. Microsoft 365, Adobe Creative Cloud, Slack, Zoom, project management tools, accounting software, and all SaaS products are deductible in the period they relate to
• Cloud hosting and infrastructure: Revenue expense. AWS, Google Cloud, Vercel, domain registrations, and SSL certificates are deductible when incurred
• Website development: If you are building a new website, the development cost is typically a capital expense covered by AIA. Ongoing hosting and maintenance is revenue expenditure

Mixed-Use Technology

If you use a laptop 90% for business and 10% for personal use, you should claim 90% of the cost. HMRC accepts reasonable estimates. A sensible approach is to claim the business percentage and note the basis for your estimate in your records. Having a separate personal device for non-business use eliminates the issue entirely and simplifies your claims.

For a comprehensive look at capital allowances and how they interact with your broader tax position, see our capital allowances guide.

Professional service fees are often among the most straightforward expenses to claim. If you hire someone to help with a specific business function, the cost is almost always deductible. The critical distinction is between costs that help you run your existing business (deductible) and costs that help you start a new one or acquire capital assets (potentially not deductible or treated as capital).

Accountancy and Bookkeeping Fees

All fees paid to accountants, bookkeepers, and tax advisers for the preparation of your company's accounts, tax returns, VAT returns, and payroll are fully deductible. This includes year-end accounts preparation, Corporation Tax return filing, monthly or quarterly bookkeeping services, management accounts, and tax planning advice.

Even your personal Self Assessment filing fee is deductible if it relates to income from your directorship. Accounting software subscriptions (Xero, QuickBooks, FreeAgent, or AccountsOS) fall into the same category. Every pound you spend on keeping your books in order is a pound off your tax bill.

Legal Costs

Legal fees are deductible if they relate to the day-to-day running of your business. This includes contract drafting and review, terms and conditions for your website, employment law advice, debt recovery, and defending business-related disputes. Legal costs associated with acquiring a capital asset (such as legal fees on a property purchase) are added to the cost of the asset rather than deducted as a revenue expense.

Fees for company formation, share issues, or other capital restructuring are not deductible as revenue expenses. However, the cost of annual company maintenance (filing Confirmation Statements, registered office fees) is deductible.

Consultancy and Contractor Fees

Payments to consultants, freelancers, and subcontractors for work related to your business are deductible. This includes marketing consultants, IT support, design agencies, virtual assistants, and specialist contractors. Ensure you keep invoices and, where relevant, written agreements showing the scope of work.

Professional Subscriptions and Memberships

Annual subscriptions to professional bodies and industry organisations are deductible, provided they are relevant to your trade. HMRC maintains a list of approved professional bodies (List 3), and subscriptions to organisations on this list are always allowable. Examples include:

• Institute of Chartered Accountants (ICAEW, ICAS, ACCA)
• British Computer Society (BCS)
• Chartered Institute of Marketing (CIM)
• Royal Institution of Chartered Surveyors (RICS)
• Law Society
• Institution of Engineering and Technology (IET)

Even if your professional body is not on List 3, the subscription may still be deductible if it is relevant to your trade. Trade publications, industry magazines, and reference material subscriptions are also allowable.

Training and Professional Development

Training courses that update or maintain skills used in your existing business are fully deductible. The cost of the course itself, plus travel and accommodation if you need to attend in person, can all be claimed. Online courses and e-learning subscriptions (LinkedIn Learning, Udemy, Coursera) are equally deductible.

The key limitation: training that equips you for an entirely new trade or profession is not deductible. A web developer attending an advanced JavaScript conference can claim the cost. A web developer training to become a solicitor cannot claim the law degree fees through the company. The line HMRC draws is between maintaining and updating existing expertise (allowable) versus acquiring fundamentally new skills for a different trade (not allowable).

Conference attendance, industry events, and trade shows are deductible. The registration fee, travel costs, and accommodation for business-focused events all qualify.

Marketing is essential for growing your business, and the associated costs are generally deductible. However, there is one major trap in this category: client entertainment. The rules around entertaining clients are stricter than many directors realise, and getting them wrong is one of the most common mistakes we see.

Advertising and Promotion

All advertising spend is deductible as a revenue expense. This includes:

• Google Ads, Facebook Ads, LinkedIn Ads, and other paid digital advertising
• Print advertising in newspapers, magazines, and trade publications
• Sponsorship of business-relevant events (provided there is a commercial benefit, not just goodwill)
• PR services and press release distribution
• Branded merchandise (pens, notepads, mugs) for promotional purposes
• Business cards and printed marketing materials

Website and Digital Presence

Your company's website is a business asset, and the costs of maintaining and improving it are deductible:

• Ongoing costs: Hosting, domain renewal, SSL certificates, CDN services, and email hosting are revenue expenses deductible when incurred
• Content creation: Copywriting, photography, video production, and graphic design for your website are revenue expenses
• SEO services: Fees paid to SEO consultants or agencies are deductible
• New website build: The initial development of a website is typically a capital expense, but it qualifies for 100% relief under the AIA, so the practical effect is the same as an immediate deduction

Networking and Events

Costs of attending networking events, trade shows, and conferences are deductible, including registration fees, travel, and accommodation. Hosting your own business event (such as a product launch or client seminar) is also deductible. The expenses must relate to promoting your business, not social entertainment.

Client Entertainment: The Big Exception

This is one of the most commonly misunderstood expense rules. Client entertainment is not deductible for Corporation Tax purposes. This means taking a client to lunch, buying them drinks, or inviting them to a sporting event cannot be deducted from your company's taxable profits, no matter how directly the entertainment relates to your business.

The definition of entertainment is broad. HMRC considers it to include hospitality of any kind provided to clients, potential clients, suppliers, or other business contacts. Meals, drinks, event tickets, golf days, and any other form of corporate hospitality all count.

However, there is a VAT silver lining. If your company is VAT-registered, you can reclaim the VAT on business entertainment of UK customers. The VAT is recoverable even though the expense itself is not deductible for Corporation Tax. This only applies to UK-based business contacts; entertainment of overseas customers remains blocked for both CT and VAT purposes.

For more detail on what counts as entertainment versus legitimate business expenses, see our guide to claiming client lunches.

Client Gifts: The 50 Rule

Business gifts to clients are deductible only if they meet all of the following conditions:

• The gift costs no more than 50 per recipient per tax year
• The gift is not food, drink, or tobacco
• The gift carries a conspicuous advertisement for your company (for example, your company logo)

A branded pen set costing 30 is deductible. A bottle of wine costing 30 is not (it is food or drink). An unbranded notebook costing 40 is not (no conspicuous advertisement). If any of the conditions are not met, the gift is treated as entertainment and is not deductible.

Staff Entertainment

Unlike client entertainment, staff entertainment is deductible up to 150 per head per year for annual events open to all employees. This covers your company Christmas party, summer outing, or team away day. If you are the sole director-employee, you can benefit from this allowance too. The 150 is a threshold, not an allowance. If you spend 151 per head, the entire amount becomes non-deductible, not just the excess.

Business insurance premiums and financial costs are often overlooked by directors, particularly those running lean micro- businesses. Every insurance policy your company holds for business protection is deductible, and many financial charges associated with running your business also qualify.

Business Insurance Types

The following insurance types are fully deductible when taken out by your company for business purposes:

• Professional Indemnity (PI) insurance: Essential for consultants, IT contractors, and professional service firms. Protects against claims arising from professional advice or services. Often required by clients as a condition of contract.
• Public Liability insurance: Covers claims from members of the public for injury or property damage caused by your business activities. Required if clients or the public visit your premises.
• Employers' Liability insurance: Legally required if you have any employees (including some subcontractor arrangements). Must provide at least 5,000,000 of cover. Even single-director companies without other staff may need this in certain circumstances.
• Directors' and Officers' (D&O) insurance: Protects you personally against claims arising from your decisions as a director. Particularly relevant if you have outside shareholders or serve on multiple boards.
• Key Person insurance: Life or critical illness cover on a key individual whose absence would significantly impact the business. The premium is deductible if the policy is to protect against the financial impact on the business (not if it is essentially a personal benefit).
• Cyber insurance: Increasingly important for businesses handling client data. Covers data breaches, ransomware, and related incidents.
• Business contents insurance: Covers office equipment, furniture, and stock against theft, fire, or damage.

For a complete breakdown of which insurance policies you need and their tax treatment, read our business insurance guide for limited companies.

Bank Charges and Financial Costs

All charges associated with your business bank account are deductible:

• Monthly account maintenance fees
• Transaction fees and payment processing charges
• Foreign exchange fees on international payments
• Overdraft arrangement fees and interest
• Business credit card annual fees
• Payment gateway and merchant service fees (Stripe, PayPal, GoCardless)

Loan Interest

Interest on loans taken out for business purposes is deductible as a revenue expense. This includes bank loans, director's loans to the company (the company can pay interest to you, which is deductible for the company but taxable as your personal income), and commercial mortgages on business property. The interest must relate to borrowing used for the trade. Interest on a loan used to buy a personal asset through the company would not qualify.

Bad Debts

If a customer owes your company money and the debt becomes genuinely irrecoverable, you can write it off as a bad debt. The written-off amount reduces your taxable profit. HMRC requires that you have taken reasonable steps to collect the debt before writing it off. If you previously charged VAT on the invoice, you can also reclaim the VAT on the bad debt (after 6 months from the due date).

Staff costs are usually the largest single expense category for any business with employees. Even if you are a sole director with no other staff, your own salary, employer NI contributions, and pension contributions are all deductible business expenses. If you do employ others, the range of deductible costs is substantial.

Director's Salary

Your own salary is a deductible expense for the company, including the employer NI the company pays on it. For 2025/26, employer NI is charged at 15% on earnings above 5,000. A director's salary of 12,570 (the personal allowance) generates employer NI of approximately 1,136, which is also deductible.

The total cost to the company (salary plus employer NI) reduces the company's taxable profit pound for pound. For the optimal salary strategy, see our limited company tax guide.

Employee Salaries and Wages

All salaries, wages, bonuses, and commissions paid to employees are deductible. Employer NI contributions (15% above the 5,000 threshold per employee) are also deductible. If your company qualifies for the Employment Allowance (up to 10,500 for 2025/26), this reduces your employer NI bill directly. Single-director companies with no other employees do not qualify.

Pension Contributions

Employer pension contributions are deductible against Corporation Tax and do not attract National Insurance. This makes them one of the most tax-efficient ways to extract value from your company. The annual allowance for pension contributions is 60,000 for 2025/26. See our tax guide section on pensions for the detailed rules.

Trivial Benefits

Your company can provide small gifts and benefits to employees and directors without triggering a benefit-in-kind tax charge, provided certain conditions are met:

• The cost of each benefit is 50 or less
• The benefit is not cash or a cash voucher
• The benefit is not provided as part of a contractual obligation or in recognition of specific services
• For directors of close companies, there is an additional annual cap of 300

In practice, this means your company can buy you gift vouchers (store-specific, not redeemable for cash), flowers, wine, a birthday present, or a small Christmas gift of up to 50 per occasion. The cost is deductible for the company and tax-free for you. Over a year, six gifts of 50 each give you 300 in tax-free benefits.

For a complete guide to maximising this allowance, read our trivial benefits guide for limited companies.

Training and Development

Training costs for employees (including you as a director) are deductible if the training relates to the existing business. This includes course fees, exam fees, travel to training venues, study materials, and professional certification costs. The same rules apply as described in the Professional Services section: updating existing skills is allowable, training for an entirely new profession is not.

Recruitment Costs

The costs of finding and hiring new employees are fully deductible. This includes recruitment agency fees, job board postings (LinkedIn, Indeed, Reed), advertising costs, and reasonable expenses for interviewing candidates (such as travel reimbursement for interviewees). Background checks and reference checking services also qualify.

Other Employment Costs

Additional deductible employment costs include:

• Statutory payments: Statutory Sick Pay (SSP), Statutory Maternity/Paternity Pay, and their associated employer costs
• Payroll processing: Fees for payroll bureaus or payroll software
• Staff welfare: Reasonable provision of tea, coffee, and refreshments in the workplace
• Eye tests and spectacles: If employees use display screen equipment, the company must provide eye tests and contribute to corrective lenses if needed. These costs are deductible and tax-free to the employee

Good record keeping is not optional. It is a legal requirement under the Companies Act 2006 and the tax legislation that governs your business. More importantly, every expense you cannot evidence is an expense HMRC can disallow if they open an enquiry. The time you invest in organising your records pays for itself many times over.

What HMRC Requires

HMRC requires your company to keep sufficient records to enable a complete and accurate tax return to be prepared and delivered. In practice, this means you must retain:

• Receipts and invoices for all purchases and expenses
• Sales invoices for all income
• Bank statements for all business bank accounts and credit cards
• Payroll records including RTI submissions, P60s, and P11Ds
• VAT records (if registered) including VAT invoices, returns, and calculations
• Mileage logs with date, destination, purpose, and miles for each business journey
• Asset registers listing all capital items owned by the company
• Contracts and agreements with clients, suppliers, employees, and landlords

The 6-Year Retention Rule

All records must be kept for at least 6 years from the end of the accounting period they relate to. If your accounting period ends on 31 March 2026, records for that period must be kept until at least 31 March 2032. If HMRC opens an enquiry, they may require records going back further, so erring on the side of keeping records longer is prudent.

Destroying records before the 6-year period expires is a criminal offence and can result in penalties of up to 3,000 per accounting period.

Digital Records and Making Tax Digital

HMRC accepts digital records, and for VAT-registered businesses, digital records are already mandatory under Making Tax Digital (MTD). Your digital records must include:

• Digital copies of receipts and invoices (photographs or scans are acceptable)
• Digital accounting records maintained in MTD-compatible software
• A digital link between your source records and your tax returns (no manual re-keying of data)

MTD for Corporation Tax is expected to be mandated in the coming years. Even if it does not apply to your company yet, maintaining digital records from the start will save you a painful transition later.

Practical Receipt Management

The simplest approach is to photograph or scan every receipt immediately and store it digitally. Here is a practical system that takes under 30 seconds per receipt:

1. Photograph the receipt with your phone as soon as you receive it
2. Upload it to your accounting software or a dedicated cloud folder (Google Drive, Dropbox, or your accounting app)
3. Categorise and annotate it with the business purpose if not obvious from the receipt itself
4. Reconcile it against your bank statement at least monthly

You can discard the paper original once you have a clear digital copy. HMRC has confirmed that digital copies are acceptable evidence for expense claims. Read our receipt management guide for tool recommendations and best practices.

What Counts as Valid Evidence

HMRC expects different levels of evidence depending on the type and size of expense:

• Under 25 (VAT-inclusive): A simplified VAT receipt (commonly issued by retailers and restaurants) is sufficient
• Over 25: A full VAT invoice is required for VAT reclaim purposes. This must show the supplier's name, address, and VAT number, the date, a description of goods or services, and the VAT amount
• Mileage: A contemporaneous log (ideally maintained at the time of each journey) showing date, start and end location, purpose of trip, and miles driven
• Use of home: Records of your total household costs and the basis for your business-use calculation

If you lose a receipt, you should attempt to obtain a duplicate from the supplier. If that is not possible, a bank or credit card statement showing the payment, combined with a note explaining the business purpose, may be accepted by HMRC as alternative evidence, though this is at their discretion.

These are the ten most common expense mistakes we see among UK limited company directors. Each is avoidable with a little knowledge and planning.

1. Claiming Personal Expenses Through the Company

Putting personal purchases through the business bank account is the fastest way to create problems. Personal spending creates a director's loan account balance, which can trigger a Section 455 tax charge of 33.75% if not repaid within 9 months of your company's year end. Even if repaid, it creates unnecessary complexity in your accounts. Keep personal and business spending completely separate using different bank accounts and cards.

2. Not Claiming Enough

The opposite problem is equally common. Many directors err so far on the side of caution that they miss thousands of pounds in legitimate deductions. Use-of-home allowance, professional subscriptions, mileage, software, training, and trivial benefits are the most commonly missed categories. If the expense has a genuine business purpose, claim it.

3. Claiming Client Entertainment as a Business Expense

As covered in the Marketing section, client entertainment is not deductible for Corporation Tax. Taking clients to lunch, buying them drinks, or treating them to events cannot be deducted from your profits. Many directors put these through as "business meals" without realising they are disallowable. If HMRC reviews your accounts and finds entertainment claimed as a deduction, they will add it back to your taxable profit and charge interest on the underpaid tax.

4. Losing Receipts and Missing Records

An expense without a receipt is an expense at risk. In an HMRC enquiry, the burden of proof is on you to demonstrate that the expense was incurred for business purposes. Without a receipt, HMRC can disallow the claim entirely. Digital receipt capture takes seconds and eliminates this risk.

5. Forgetting to Claim Mileage

Directors who drive to client meetings, suppliers, or business events frequently forget to log their mileage. At 45p per mile, even modest driving adds up quickly. Driving 500 business miles per month generates a 2,700 annual claim. At 19% CT, that is 513 in tax savings. Set up a mileage tracking app on your phone and log every business journey.

6. Claiming the Wrong Amount for Use of Home

Some directors claim too little (defaulting to the 6/week flat rate when actual costs would give a much larger claim). Others claim too much (allocating an unreasonably high proportion of household costs to business use). Be methodical: calculate both methods, use the higher one, and keep records of how you arrived at the figure.

7. Not Understanding Capital Allowances

Buying a 2,000 laptop and trying to deduct 2,000 from your revenue as an ordinary expense is technically incorrect. Equipment with a useful life of more than one year is a capital item. The good news is the AIA allows you to deduct it in full in the year of purchase, but it needs to go through your capital allowance computation, not your profit and loss account directly. Your accountant or software should handle this, but understanding the distinction helps you plan purchases around your year end.

8. Missing VAT on Expenses

If your company is VAT-registered, you can reclaim the VAT on most business purchases. But you need a valid VAT invoice to do so. Many directors pay for items but do not request a VAT receipt, losing the opportunity to reclaim 20% of the cost. Always ask for a VAT invoice when making business purchases.

9. Confusing Company Money with Personal Money

Your limited company is a separate legal entity. Its money is not your money. Drawing cash, paying personal bills, or making personal purchases with company funds (even if you intend to repay) creates director's loan complications. Extract money properly through salary, dividends, or employer pension contributions.

10. Not Planning Expenses Around the Year End

Timing matters. If your company's profits are approaching the 50,000 small profits threshold, accelerating a planned purchase into the current period can save you from the 26.5% marginal rate on the amount above 50,000. Conversely, if you have a loss-making year, deferring expenses to a profitable year ensures you get the full tax benefit. A few hours of planning in the final month of your accounting period can save hundreds or thousands in tax.