Log in
Corporation TaxUpdated 2026-02-12

What expenses reduce Corporation Tax?

Quick Answer

Most genuine business expenses reduce your Corporation Tax bill, including salaries, rent, utilities, professional fees, travel, equipment, and pension contributions. The expense must be 'wholly and exclusively' for business purposes.

Let Finn handle this for you

AccountsOS does your books for you. Ask Finn about your own business, no signup needed.

Detailed Explanation

Expenses that reduce your Corporation Tax

Corporation Tax is calculated on your company's taxable profits. Every allowable business expense reduces this figure, directly cutting your tax bill.

How much does each expense save?

At the main rate of 25%, every £1,000 of allowable expenses saves £250 in Corporation Tax. At the small profits rate (19%), the saving is £190 per £1,000.

Fully deductible expenses

Staff costs

- Salaries and wages - Employer National Insurance contributions - Employer pension contributions - Staff benefits (some create BIK for employees) - Recruitment costs - Training and professional development

Premises costs

- Rent - Business rates - Utilities (gas, electric, water) - Insurance - Repairs and maintenance (not improvements) - Cleaning

Office and admin

- Stationery and supplies - Postage and courier - Phone and broadband - Software subscriptions - IT equipment (or capital allowances for larger items) - Professional subscriptions

Professional services

- Accountancy fees - Legal fees (relating to trade) - Consultancy fees - Bank charges and interest on business loans

Marketing and sales

- Advertising costs - Website costs - PR and marketing - Trade shows and exhibitions

Travel and subsistence

- Business travel (not regular commute) - Hotels and meals when away overnight - Mileage at approved rates - Public transport fares

Expenses with special rules

Capital expenditure (equipment, vehicles, machinery): - Not deducted directly from profits - Claimed through capital allowances instead - Annual Investment Allowance: 100% relief on first £1m - Full expensing: 100% on new qualifying assets

Client entertainment

- **Not deductible** for Corporation Tax - Added back to profits in tax computation - The cost still comes from pre-tax money though

Mixed-use expenses (personal and business): - Only the business proportion is deductible - Must be able to justify the split - Common for: phone bills, vehicle costs, home office

Pension contributions

- Employer contributions are **fully deductible** - One of the most tax-efficient expenses - £60,000 annual allowance per director - No NI on pension contributions either

Director's salary

- Fully deductible including employer NI - £12,570 salary saves £3,143+ in CT at 25%

Expenses that don't reduce Corporation Tax

  • Dividends (paid from post-tax profits)
  • Client entertainment and hospitality
  • Fines and penalties
  • Political donations
  • Non-trade expenditure
  • Depreciation (replaced by capital allowances)
  • Provisions for future costs (with exceptions)

Timing matters

Expenses are deductible in the period they relate to, not necessarily when paid. Accruing expenses before your year-end can accelerate tax relief. Common tactics: - Bring forward equipment purchases - Pay pension contributions before year-end - Accrue bonuses before year-end (but pay within 9 months)

Source: HMRC Allowable Business Expenses for Corporation Tax

Real-World Examples

Software Subscription for CRM

Your company spends £500 annually on a CRM software subscription to manage customer relationships. This is a legitimate business expense directly related to generating revenue and therefore deductible, reducing your Corporation Tax bill by £125 at the 25% rate.

Training Course for Staff

You invest £2,000 in a training course to upskill your employees in new marketing techniques. This expenditure is wholly and exclusively for business purposes, resulting in a £500 Corporation Tax saving (at 25%) and a more skilled workforce.

Home Office Expenses

If you operate your limited company from home, you can claim a proportion of your household bills (like electricity, heating, and internet) as allowable expenses. Keep detailed records of your business use to justify your claims to HMRC.

Common Mistakes to Avoid

  • Claiming expenses with a 'duality of purpose,' such as a personal holiday disguised as a business trip, which are unlikely to be fully deductible.
  • Failing to keep adequate records, making it difficult to prove to HMRC that expenses were genuinely for business purposes.
  • Claiming expenses that are capital in nature (e.g., purchasing a building) as revenue expenses; capital expenses are treated differently for tax purposes, often through capital allowances.
  • Forgetting to claim all eligible expenses, such as allowable mileage for business travel using a personal vehicle, resulting in a higher Corporation Tax bill.

Are there any expenses that are *never* deductible for Corporation Tax?

Yes, fines for breaking the law (e.g., parking tickets) are generally not deductible. Also, expenses incurred before the company started trading are usually not immediately deductible, though pre-trading expenses can often be carried forward.

How do I treat expenses that have both a business and personal element?

You can only claim the portion of the expense that relates wholly and exclusively to the business. For example, if you use your phone 60% for business, you can claim 60% of the phone bill as an expense.

What are capital allowances and how do they relate to expenses?

Capital allowances are a way to claim tax relief on capital expenditure, such as buying equipment. Instead of deducting the full cost as an expense in one go, you deduct a portion of the cost each year as an allowance. The Annual Investment Allowance (AIA) often allows you to deduct the full cost of many items in the year of purchase, up to a certain limit.

Can I claim for entertaining clients or customers?

Entertaining expenses are generally not tax-deductible, with some very limited exceptions. However, staff entertaining is usually deductible, as long as it’s wholly and exclusively for business purposes and not excessive.

Practical Tips

  • Use accounting software like AccountsOS to automatically track and categorise your business expenses throughout the year, making it easier to identify deductible items at year-end.
  • Maintain a separate bank account solely for business transactions to clearly distinguish business expenses from personal spending, simplifying reconciliation and audit trails.
  • Develop a clear company expenses policy outlining what types of expenses are allowable and the procedures for submitting expense claims to ensure compliance with HMRC rules.
  • Regularly review your expense claims to ensure you're not missing any allowable deductions. Schedule a quarterly review with your accountant to optimise your Corporation Tax position.

Related Questions

What is the Corporation Tax rate in 2025?

The main Corporation Tax rate is 25% for profits over £250,000. Small profits rate is 19% for profits under £50,000. Marginal relief applies between £50,000 and £250,000.

When is Corporation Tax due?

Corporation Tax is due 9 months and 1 day after your company's accounting period ends. Your CT600 return must be filed within 12 months of the accounting period end.

What expenses can I claim through my company?

You can claim expenses that are 'wholly and exclusively' for business purposes. This includes travel, equipment, professional subscriptions, training, marketing, and business insurance.

Browse all questions →

Get instant answers to all your accounting questions

AccountsOS uses AI to answer your tax and accounting questions in plain English. Ask Finn, get the figure, keep a human for the hard calls.

Get Started Free

Free for 14 days - No credit card required