"Can the company pay for this?" is one of the most common questions we get from directors. It sounds simple, but the answer shapes how much Corporation Tax you pay and whether you're storing up a problem for a future HMRC check.
The short version: your company can pay for things it needs to run the business, and those costs reduce its taxable profit. The catch is a single, strict test that decides what counts, plus a handful of costs HMRC will never let you deduct no matter how business-like they feel.
This guide is for limited company directors, contractors and startup founders who want to claim everything they're entitled to without crossing a line. We'll cover the "wholly and exclusively" rule, the main categories of allowable expenses, what's blocked, and a worked example so you can see the tax saving in pounds.
What counts as an allowable expense for a limited company?
An allowable expense is a cost your company incurs running its business that you can deduct from income before working out the profit you pay Corporation Tax on.
A quick reminder on how a company differs from a sole trader. If you run a limited company, you're not self-employed, even if you're the only director and only employee. The company is a separate legal person. It earns the income, it incurs the costs, and it pays Corporation Tax on its profit. You, the director, are an officer and usually an employee of that company.
That separation matters. It's why the rules for what your company can claim aren't quite the same as the rules for a sole trader, and it's why some "expenses" that benefit you personally have to be treated as either taxable pay or a benefit in kind rather than a clean deduction.
How does the "wholly and exclusively" rule work?
Every business expense is judged against one test. To be deductible, a cost must be incurred "wholly and exclusively for the purposes of the trade". For companies, that test sits in section 54 of the Corporation Tax Act 2009.
In plain terms, the cost has to be there for the business and only the business. If there's a non-business purpose mixed in, the expense fails the test and the whole amount is disallowed. HMRC calls this "duality of purpose", and there's no automatic right to claim "the business bit" of a mixed cost.
There's an important exception. Where a cost can be split into a clearly identifiable business part and a private part, you can claim the business part. The classic examples are use of your home and use of your own car. A working lunch you'd have eaten anyway is duality and fails; the mileage for a genuine business journey is a measurable business proportion and is fine.
So the practical question isn't "is this business-ish?" It's "was this cost incurred only for the company's trade, and if it's mixed, can I cleanly identify the business portion?"
What expenses can my limited company claim?
If a cost passes the wholly and exclusively test, it's almost certainly allowable. These are the everyday categories most companies will recognise.
| Category | Typical examples |
|---|---|
| Staff costs | Salaries, employer's National Insurance, workplace pension contributions, recruitment, staff training |
| Premises | Rent, business rates, heating, lighting, cleaning of business premises |
| Office and admin | Stationery, postage, business phone and broadband, software subscriptions |
| Professional fees | Accountancy, bookkeeping, legal advice on trading matters, professional indemnity insurance |
| Travel | Business mileage, train and air fares, parking, business accommodation |
| Marketing | Website, advertising, branded materials |
| Finance costs | Business bank charges, interest on business loans, business insurance |
| Stock and materials | Goods for resale, raw materials, direct costs of what you sell |
A few of these reward a closer look.
Capital items, things you buy to keep and use in the business such as equipment, computers or vans, aren't deducted as a simple expense. They go through the capital allowances system instead, where the Annual Investment Allowance lets companies claim 100% of qualifying plant and machinery, up to £1,000,000 a year (current, from 1 January 2019). The tax relief is real, it just travels by a different route.
Good bookkeeping is what turns this list into actual tax savings. An expense you can't evidence is an expense you can't safely claim.
What can a director claim through the company?
This is where directors trip up most often, because the line between a company cost and a personal cost is easy to blur.
Can my company pay me mileage for using my own car?
Yes. If you use your own car for business journeys, the company can pay you a mileage allowance free of tax up to HMRC's approved rates. For cars and vans the approved rate is 45p per mile for the first 10,000 business miles in the tax year and 25p per mile after that; from 6 April 2026 the first-10,000 rate rises to 55p per mile. Motorcycles are 24p and bicycles 20p per mile (HMRC approved mileage allowance payment rates).
This keeps the running costs of your private car out of the company while giving you a clean, evidenced deduction. You just need a mileage log showing the date, journey and business reason.
Can my company pay for working from home?
If you work from home as a director, the company can reimburse you a flat £6 a week without you needing to keep detailed bills. That's the HMRC homeworking rate for employees and directors, and it's the simplest route. You can claim more if you can evidence the actual additional household costs of working from home, but most directors take the flat rate for an easy life.
One thing to note: the "simplified expenses" flat rates you may have read about for home use and mileage are only for sole traders and partnerships. Limited companies can't use them. Your company uses the employee homeworking rules and approved mileage rates instead.
What about my phone, training and subscriptions?
A mobile contract in the company's name, used for business, is allowable and isn't a taxable benefit even if you make the odd private call. A contract in your personal name is messier, so where it's practical, put it in the company's name. Training that maintains or updates the skills your role needs is allowable; training to learn a brand-new trade usually isn't. Professional subscriptions on HMRC's approved list are fine.
What expenses are not allowable?
Some costs are disallowed even when they feel like part of doing business. Knowing these saves you an awkward conversation later.
- Client entertaining. Hospitality you provide free to clients or customers, the lunch, the drinks, the hospitality box, is specifically disallowed for tax. The company can pay for it, but it can't deduct it from profit.
- Most fines and penalties. Parking fines and similar penalties are not allowable.
- Anything with a private purpose. A cost that's part business, part personal and can't be cleanly split fails the wholly and exclusively test.
- Drawings and dividends. Money you take as dividends isn't a business expense; it's a distribution of profit after tax.
- The cost of capital assets as a lump expense. As above, these go through capital allowances, not the profit and loss as a one-line cost.
Staff entertaining is treated more generously than client entertaining and can qualify for relief within set limits, so it's worth keeping the two clearly apart in your records.
How much tax does claiming expenses actually save?
Every allowable expense reduces taxable profit, and Corporation Tax is charged on what's left. So the saving is the expense multiplied by your Corporation Tax rate.
For the financial year from 1 April 2025, the small profits rate of Corporation Tax is 19% on profits up to £50,000, and the main rate is 25% on profits over £250,000, with marginal relief in between (FY2025).
Illustrative example. Maya runs a consultancy through her limited company. In the year, the company has £48,000 of profit before she accounts for some costs she'd overlooked: £4,200 of accountancy and software, £1,350 of business mileage (3,000 miles at 45p), £312 of homeworking allowance (£6 a week), and £2,138 of other genuine business costs. That's £8,000 of allowable expenses in total.
| Amount | |
|---|---|
| Profit before these expenses | £48,000 |
| Less allowable expenses | -£8,000 |
| Taxable profit | £40,000 |
| Corporation Tax at 19% | £7,600 |
Without claiming the £8,000, the company would have paid Corporation Tax of £9,120 (£48,000 at 19%). Claiming them cuts the bill to £7,600. The expenses save the company £1,520 in tax, which is simply £8,000 multiplied by 19%.
Both the before and after profit figures sit under £50,000, so the flat 19% rate applies throughout and there's no marginal relief to complicate the maths. The lesson holds at any rate: a claimed expense saves you tax at your company's rate, an unclaimed one saves you nothing.
This is exactly the kind of thing a good accountant catches. If you want to see how your own numbers fall out, our Corporation Tax service and bookkeeping support are built around making sure nothing legitimate is left on the table.
How long do I keep the records?
A limited company must keep its accounting records for at least 6 years from the end of the financial year they relate to. Hold them longer if a transaction spans more than one accounting period, if the records relate to an asset expected to last more than six years, if you filed your Company Tax Return late, or if HMRC has opened a compliance check.
In practice, keep every receipt, invoice and mileage note from the moment you spend, not at year-end. Reconstructing a year of expenses from memory is how good claims get lost.
Frequently asked questions
Can a limited company claim expenses before it started trading?
Yes. Costs incurred in the run-up to trading can often be treated as pre-trading expenditure and relieved as if they were incurred on the first day of trade, provided they'd have been allowable once trading. Keep the receipts and flag them to your accountant. New companies should read our guidance for startups for the wider picture.
Do contractors follow different expense rules?
The wholly and exclusively test is the same, but contractors inside IR35 face tighter limits on what the company can claim against the deemed payment. If you contract through your own company, our page for contractors explains how status affects expenses and pay.
Can my company pay for my lunch while I'm working?
Generally no. A normal lunch you'd have eaten anyway has a private purpose and fails the wholly and exclusively test. Subsistence on a genuine business trip away from your normal workplace is a different matter and can be allowable.
Is client entertaining ever tax deductible?
No. Hospitality provided free to clients or customers is specifically disallowed for tax, even when it clearly helps win work. The company can still pay for it, it just can't reduce its taxable profit by the cost.
What's the difference between an allowable expense and a benefit in kind?
An allowable expense is a clean company cost that reduces taxable profit. A benefit in kind is something the company provides that gives you a personal benefit, like private medical cover, which is reported on a P11D and taxed on you. The same payment can't be both, so getting the treatment right matters.
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Talk to a Zmartly accountant about your expenses
Not sure whether the company can pay for something, or worried you're leaving claims unmade? Book a free 20-minute call with a Zmartly accountant and we'll walk through your costs, tidy up the records and make sure your Corporation Tax bill is no higher than it needs to be.
