The Ultimate Guide to Allowable Expenses for Limited Companies (2026)

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Table of Contents

What counts as an allowable company expense?
Common allowable expenses for limited companies
Expenses that are commonly disallowed
Equipment and capital allowances
Pre-trading expenses
Records and practical checklist
Official sources

Allowable expenses reduce a limited company’s taxable profit and therefore its Corporation Tax bill. The key rule is that revenue expenditure must be incurred wholly and exclusively for the purposes of the company’s trade. A cost is not automatically deductible merely because the director paid it from the company bank account.

This 2026 guide covers the expenses UK limited companies most commonly claim, the current limits and the records needed to support them.

What counts as an allowable company expense?

An expense normally qualifies when it has a genuine business purpose, is revenue rather than capital expenditure, is not specifically disallowed by tax law and is supported by adequate records. Where a cost has both business and private elements, the identifiable business portion may sometimes be claimed. If the private element is inseparable, the whole cost may be disallowed.

Capital purchases such as computers, equipment and vehicles are generally relieved through capital allowances rather than deducted as an ordinary expense.

Common allowable expenses for limited companies

Staff costs and director salaries

Gross salaries, employer National Insurance and qualifying staff costs are normally deductible when incurred for the trade. Directors’ remuneration should be authorised, processed through PAYE and supported by payroll records. Dividends are distributions of post-tax profit and are not a Corporation Tax expense.

Employer pension contributions

Company contributions to a registered pension scheme are normally deductible if made wholly and exclusively for the trade. Relief is generally based on when the contribution is paid, not merely accrued. Pension annual-allowance and anti-avoidance rules can affect the individual, so large or unusual contributions need tailored advice.

Business travel and mileage

A company can reimburse an employee or director using their own car for qualifying business journeys at HMRC’s approved mileage rates: 55p per mile for the first 10,000 business miles in the tax year and 25p thereafter. The rates for motorcycles and bicycles are 24p and 20p per mile respectively. Ordinary commuting between home and a permanent workplace is not business travel.

Keep a mileage log showing the date, destination, business purpose and distance. Company cars follow separate benefit-in-kind rules; see our 2026/27 company car tax guide.

Working from home

An employer can normally reimburse an employee who regularly works at home for additional household costs at HMRC’s flat rate of £6 per week or £26 per month without evidence of the exact additional cost. A higher amount needs evidence. Directors should avoid charging a company for a proportion of general household costs without a defensible agreement and calculation, as tax, benefit and property issues can arise.

Office, software and professional costs

Business stationery, postage, telephone calls, accounting software, cloud services, professional subscriptions and relevant accountancy or legal fees are commonly deductible. A dual-purpose mobile or broadband contract may need apportionment. The company should ideally contract and pay for business services directly.

Training

Training for employees and directors is generally deductible where it updates or develops skills relevant to the company’s existing trade. Costs incurred to launch an unrelated new trade or acquire an entirely new profession require closer analysis.

Insurance

Business insurance such as professional indemnity, public liability, employers’ liability and relevant equipment cover is normally deductible. Certain employer-provided life or medical benefits may have separate employee tax and reporting consequences.

Staff entertaining and annual events

Staff entertaining is usually deductible for Corporation Tax. A qualifying annual party or similar annual function can also be exempt from employee benefit tax where it is open to all employees and the total cost does not exceed £150 per head, including VAT. This is an exemption, not an allowance: if the cost of an event exceeds £150 per head, the full amount may become taxable. See the P11D and benefits guide for reporting considerations.

Trivial benefits

A qualifying trivial benefit can be exempt where it costs no more than £50, is not cash or a cash voucher, is not provided through salary sacrifice and is not a reward for work. Directors of close companies are subject to a £300 annual cap for qualifying benefits provided to them and members of their household. Read our trivial benefits guide.

Expenses that are commonly disallowed

Client entertaining: business entertaining is generally disallowed for Corporation Tax, even where it has a clear commercial purpose. VAT recovery is also normally blocked.
Fines and penalties: fines imposed for breaking the law are generally not deductible.
Private costs: personal holidays, ordinary clothing, family groceries and other private spending are not company expenses.
Dividends and Corporation Tax: neither is deducted in calculating taxable trading profit.
Political donations: these are generally not deductible as trading expenses.

Equipment and capital allowances

The Annual Investment Allowance can provide 100% relief for qualifying plant and machinery, subject to its £1 million annual limit and rules for groups and short accounting periods. Cars do not qualify for AIA. Qualifying new zero-emission cars may instead receive a 100% first-year allowance; this relief currently runs to 31 March 2027 for Corporation Tax.

Companies may also be able to claim full expensing or the 50% first-year allowance for qualifying new plant and machinery. The correct relief depends on the asset, whether it is new and unused, and how it is used.

Pre-trading expenses

Qualifying revenue expenses incurred during the seven years before trading begins can often be treated as incurred on the first day of trade, provided they would have been deductible if incurred after trading started. Incorporation costs and share-issue costs do not automatically qualify.

Records and practical checklist

Keep invoices, receipts, contracts and proof of payment.
Record the business purpose and attendees for travel or entertaining.
Separate private expenditure and repay an accidental personal payment promptly.
Use a director’s loan account where the company pays a director’s personal cost; do not mislabel it as an expense.
Retain Corporation Tax records for at least six years from the end of the accounting period, and longer where required.
Review VAT recovery separately because an expense can be deductible for Corporation Tax while its VAT is blocked.