Allowable Expenses for UK Limited Company Directors: What You Can (and Can't) Claim
Allowable Expenses for UK Limited Company Directors: What You Can (and Can't) Claim
Most new directors don't get expenses wrong because they're trying to push their luck. They get it wrong because nobody ever sat them down and explained the actual rule HMRC applies, so they either under-claim out of caution or claim things a compliance check would throw straight back out. Both cost money: one in tax you didn't need to pay, the other in penalties and interest if it's ever queried.
The rule that decides almost everything
For a cost to reduce your company's corporation tax bill, it has to be incurred "wholly and exclusively" for the purposes of the business. That phrase is doing a lot of work. It doesn't mean the cost has to be 100% business in nature forever: it means that if there's a private element to it, you either need to strip that part out or accept the whole thing is disallowed.
A laptop used only for client work is straightforward. A laptop your teenager also uses for homework isn't automatically disqualified, but the mixed use is the kind of thing that gets tested if HMRC ever looks closely, so it helps to be honest about it in your own records rather than hoping it doesn't come up.
Business mileage: the rate just went up for the first time since 2011
If you drive your own car for business journeys and the company reimburses you at HMRC's approved rate, that payment is tax-free and doesn't need to go through payroll. From 6 April 2026, that rate rose to 55p per mile for the first 10,000 business miles in the tax year, up from 45p. It's the first increase to the approved mileage rate in 15 years. Mileage over 10,000 miles in the year stays at 25p per mile.
If your company pays you more than the approved rate, the excess is taxable and needs reporting. If it pays you less, you can claim Mileage Allowance Relief for the shortfall on your own tax return. Either way, the record you need is the same: date, destination, business purpose, and miles travelled, kept as you go rather than reconstructed at year end.
Working from home: flat rate or actual costs
Directors who work from home some or all of the time have two realistic options. The simplified flat rate, currently £6 a week (£26 a month), can be paid to you by the company with no supporting evidence required and no benefit-in-kind charge. It's modest, but it's genuinely hassle-free.
The alternative is to work out a proportion of your actual household costs (heating, electricity, and a fair share of costs like broadband) based on the extra cost caused by working from home, not just a blanket percentage of the whole bill. This route can be worth more if you're running a home office full-time, but it needs a defensible calculation behind it, not a round number you liked the look of. What it can't include is any part of your mortgage or rent, since claiming that risks creating a capital gains tax complication if you ever sell the property.
Equipment, software, and things you buy to run the business
Laptops, monitors, software subscriptions, a proper desk chair, tools of your trade: if it's used wholly and exclusively for the business, the cost is deductible. For larger purchases, the Annual Investment Allowance currently lets you deduct up to £1 million of qualifying capital expenditure in the year you spend it, rather than spreading the relief over several years through standard capital allowances. For most small companies buying a few thousand pounds of equipment a year, this means the full cost comes off profit in the year it's bought.
Subscriptions and professional memberships are usually fine if they're relevant to the trade: an accountancy body membership for a director who does the books, a trade association fee, industry publications. A gym membership "for wellbeing" generally isn't, however much you'd like it to be.
Entertaining staff vs entertaining clients: treated completely differently
This is the one that catches people out. Taking your team out for an annual event is specifically protected: the annual event exemption lets a company spend up to £150 per head, including VAT, on one or more annual functions (a Christmas party, a summer do) available to all staff, and the cost is both a deductible expense for the company and tax-free for the people attending. Go a penny over £150 per head and the whole amount becomes taxable, not just the excess, so it's worth costing the event properly beforehand rather than finding out after the invoice arrives.
Client entertaining sits in a completely different category. Taking a client to dinner, a match, or drinks is a perfectly normal thing to do for the business, but HMRC does not allow a corporation tax deduction for it, and VAT on it generally can't be reclaimed either. It's still a legitimate business cost to pay through the company rather than out of your own pocket, but don't expect it to reduce your tax bill. Plenty of directors assume it does and find out otherwise at year end.
The expense that isn't really an "expense" at all
Trivial benefits (small, non-cash perks under £50 a time) sit outside all of this and have their own separate exemption, which we've covered in detail elsewhere on this blog. The distinction that trips people up is that trivial benefits are for gifts and small perks, not for reimbursing costs you incurred running the business, so the two categories need to be kept apart in your records even though both end up reducing what you take home as taxable income.
Keeping the evidence, not just the spreadsheet
None of the above matters much if you can't produce a receipt or a mileage log when it's asked for. HMRC can enquire into a return well after it's filed, and "I'm sure I bought that for the business" doesn't hold up on its own. The practical habit that saves the most pain later is logging expenses close to when they happen, with a note of what the cost was actually for, rather than trying to categorise a shoebox of receipts every January.
This is the part of company admin that Founders Ledger is built around: live bookkeeping that captures expenses and mileage as they happen, flags anything that looks like it needs a second look, and rolls straight into your corporation tax estimate so you can see the effect of a purchase before you make it, not after your accountant queries it. If you're currently working this out from bank statements at the end of each quarter, Founders Ledger is worth a look.
This article is correct to the best of our knowledge at the time of writing (September 2026) but isn't a substitute for advice from a qualified accountant or tax adviser, particularly if your situation involves significant mixed-use assets or high-value entertaining. Tax rules and thresholds can and do change.