Limited company expense guidelines
01 February, 2009
The only expenses that can be claimed from a company are legitimate business expenses. HMRC will only allow expenses that are 'wholly, exclusively and necessarily incurred in the performance of your duties’.
HMRC will disallow any expenses that do not meet this rule and do not fulfil each of the three criteria wholly, exclusively and necessarily.
It is essential to obtain and retain receipts for all expenses incurred in order to be able to justify the expense if questioned by HMRC.
An overview of the main categories of expenses that can be reclaimed:
Travel and Subsistence Expenses
Determining whether travel and subsistence expenses are allowable is a complex area but generally you can claim expenses incurred for all legitimate business journeys including travel to a temporary workplace. This means you can claim the costs of travel from your home to your client site so long as this site remains a temporary workplace. This is a considerable difference from employees in a permanent job, as travel to their place of work would be regarded by HMRC as ‘ordinary commuting’ and therefore not an allowable expense.
A temporary workplace is defined as a workplace where you go to perform a task of limited duration or for a temporary purpose.
A temporary work place ceases to be a 'temporary' workplace if you attend it for a period of continuous work that lasts, or is likely to last, more than 24 months. This means as soon as you know that you will be at a workplace for more that 24 months then travel and subsistence cannot be claimed.
Examples of Travel and Subsistence Expenses
- Air, Train, bus, ferry and taxi fares
- Parking, congestion charges and tolls
- Subsistence expenses e.g. lunch at temporary workplace
- Hotel and meals, if you need to stay away from home
- £5 per night personal incidental expenses (PIEs) for overnight stays in the UK
- £10 per night personal incidental expenses (PIEs) for overnight stays overseas
- Mileage using your own vehicle (see below)
The above examples should be allowable expenses provided they are for business journeys or for travel to a temporary workplace. Please Note: PIEs do not require receipts.
If you use your own vehicle for business travel you can claim the rates set out in the table below. Please Note: Total business mileage relates to each individual tax year and includes mileage claimed in previous employments in that tax year.
|Vehicle||Rate Per Mile (On first 10,000 miles in tax year)||Rate Per Mile (On each mile over 10,000 miles)|
|Cars and Vans||40p||25p|
Entertaining expenses are always disallowed in the company's accounts as a deduction for Corporation Tax. The areas most likely to raise an inquiry by HMRC into the company's accounts are the Director’s travel and entertaining expenses as these have the most potential for abuse.
Expenses related to bona fide business entertaining may be claimed if the entertainment meets all of the following criteria:
- Customers or potential customers are present, and
- No member of the employee or office holder’s family is present, and,
- Where the purpose of the event is not predominantly social, (e.g. reciprocal entertaining).
The cost of entertaining staff or colleagues in the same organisation is not considered bona fide business entertaining e.g. your Company Secretary.
A full explanation of entertainment expenses should be documented and substantiated by original receipts.
Telephones and Internet
- Home Telephones
You can claim the cost of the business calls only. You cannot claim the cost of rental as this will be treated as a benefit in kind on which you will pay tax. If you wish to claim rental then install a second line but make sure the account is in the company name and is paid for by the company.
- Mobile Telephones
If the account is in the company name and company pays the bill then there is no taxable benefit for a mobile phone. If the account is personal then you can claim the cost of business calls only.
If the account is in the company name and any private use is not significant then there is no taxable benefit for internet usage. If the account is personal then you may only claim a proportion of the bill based on your business usage.
Claims for subscriptions to professional bodies relevant to your employment are permitted. This is restricted to certain professional bodies approved by HMRC.
Subscriptions where the activities of that professional body are not directly relevant to the employment are specifically disallowed.
General Office Purchases
The actual cost of office stationery, postage and computer consumables used wholly, exclusively and necessarily in the performance of your duties. Please retain receipts.
The cost of training courses provided these relate to the duties of your employment.
Reference Books and Journals
Reference books and journals provided these relate to the duties of your employment.
The cost of an eyesight test, if it is necessary for the initial or continued use of visual display equipment in your duties, will be allowed. The cost of spectacles cannot be claimed.
Use of Home as an Office
If you have an office in your home you can claim a modest amount that can be justified to HMRC.
For minor use, e.g. just filling in expense claims or raising monthly invoices, because you leave home each day to carry out your contract activities at a client site, the HMRC guideline example is a figure of £2.00 per week as acceptable.
If the claim is greater than £2 per week then this could trigger an investigation by HMRC so unless your costs are significant it is probably sensible not to make any claim.
If your costs are significant, you must actually work from home on revenue generating activities. The office you use must be a business office and not just a bedroom or a kitchen table. It must be available to be inspected by HMRC who may ask to hold a meeting in the office. The cost should represent the cost of you providing an office at home i.e. a proportion of heating, lighting etc plus a proportion of council tax and other direct property costs. For example: In a 7 room house you could charge 1/7 of your costs.
However, if this is a large sum you could find that your office is excluded from your principal private dwelling allowance. This would mean when you come to sell your house, that proportion, in this case 1/7, of the property is subject to Capital Gains Tax.
If you leave your home to carry out your contract activities at a client site, then it is unlikely you can make a claim and in many cases, it is probably sensible not to make any claim.
The cost of equipment purchased to carry out the duties of your employment. This would include computers, printers, software, other peripherals plus the costs of equipping an office e.g. desks, chairs, filing and bookcases.
When making these purchases you can pay personally but must obtain an invoice in the company name.
Expense Items that cannot be claimed
Expense items that cannot be claimed include the following:
- Office Clothing sucha s business suits (except safety clothing)
- Car service and repairs
- Training Courses not related to your employment - e.g. plumber claiming skiing instruction
- Private club subscriptions - e.g. Golf Club membership
- Items mainly for personal use - e.g. televisions, cameras, Hi Fi, Sat Nav
Please remember business expenses should only relate directly to your business. Personal expenses that do not wholly relate to the business of your company should not be claimed.