Go Limited - May - Maximising Your Bottom Line: Allowable Expenses and Entertainment Costs for Limited Companies
Go Limited - May - Maximising Your Bottom Line: Allowable Expenses and Entertainment Costs for Limited Companies
Running a limited company isn’t easy, not when you’re trying to be as successful as possible, make as much money as you can and continue to grow. That’s why it’s so important to maximise your bottom line. When you’re putting hard work and dedication into your career, you want to know that you’re getting as much out of it as possible. That’s not always easy, but understanding allowable expenses and entertainment costs certainly helps.
When you run a limited company, you have expenses that you need to pay for. For example, rent on your business premises or buying raw materials. You might have staff to pay, insurance to fork out for and travel to factor in. This is by no means an extensive list, and there are many other business costs, depending on the type of business you have.
Regardless of what you’re spending money on and what your business costs are, it’s important to know that many business costs are allowable expenses, meaning that they’re tax deductible. This can seem confusing at first, but the Go Limited experts are here to help.
Common Limited Company Allowable Expenses Contractors Can Claim
As the director of a limited company, you can claim allowable expenses. The range of expenses varies a lot, so it’s important to know what you can claim, and what HMRC says you shouldn’t.
Travel and Subsistence
There are different ways to approach contracting, and some professionals choose to travel a lot to clients. When you do so, you can claim costs for travel to temporary workplaces, including public transport fares, mileage for your personal car, parking fees and tolls, accommodation, meals and snacks whilst you’re travelling. You’re not able to claim for the cost of commuting between your home and a permanent workplace, so keep that in mind when you’re sorting out your tax return.
Employee Costs and Pensions
If your limited company employs staff, you can claim expenses for salaries, National Insurance contributions, workplace pension contributions, benefits and perks - as long as they are deemed to be tax-compliant by HMRC - and training costs that maintain or update existing skills. This is the case even if you are the only employee.
Professional Fees and Services
As a contractor, you’ll likely use external professionals to help with business tasks. These include accountancy and bookkeeping services, legal advice related to business contracts or disputes, business bank fees, and recruitment or payroll service providers. You can also claim for subscriptions to industry-specific professional organisations or trade bodies, as long as they are relevant to your current trade.
Office and Equipment Costs
Whether you work remotely, from a co-working space or rent a physical office, there are a number of office and equipment costs that are all allowable. This includes rent and utility bills, office furniture, IT equipment, business phones, internet and repairs to items used for business purposes. If you work from home, you can claim a portion of your household bills, either using HMRC’s flat rate or by calculating actual business use.
Insurance Policies
Limited companies often need several types of business insurance, all of which are allowable. This includes professional indemnity insurance, public liability insurance, employers’ liability insurance, business contents insurance and cybersecurity. You can add those to your list of tax deductible limited company expenses.
Tools and Services
If you use tools and services to run your business, you can claim them as an allowable expense for your limited company. This includes project management software, design tools, cloud storage, CRM or email marketing tools, website hosting and domain renewals. These are all used as part of the day-to-day running of your business, and so they’re allowable.
Our Top Tips for Better Limited Company Expense Management
- Use Accounting Software - Platforms like FreeAgent, Xero and QuickBooks make it easier to track, categorise and reconcile expenses. This ensures your expenses are noted down correctly, making sure nothing is missed.
- Keep Receipts on the Go - It’s a good idea to use accounting software or a notes app to photograph receipts in real time, when you’re on the go. There’s no guarantee that you’ll remember them otherwise.
- Reconcile Monthly - Set aside a day each month to check your bank feeds, cross-reference expenses, and flag anything that looks suspicious or unclear. It’s a lot easier to fix an issue at the time, rather than months and months later when you’re filling in a tax return.
- Keep Business and Personal Finances Separate - Open a dedicated business bank account and pay for all expenses from it. This improves transparency and makes bookkeeping far easier. Otherwise, you’ll spend a lot of time trying to remember which purchases were for the business, and which were for personal use.
Entertainment Costs: What’s Claimable and What’s Not
There’s a lot of confusion surrounding entertainment costs for contractors, especially when it comes to which entertainment costs are tax deductible, and which are not. Entertainment is only partially allowable; it depends entirely on who is being entertained and the context. You can’t lump all entertainment costs in together and claim for everything, as not all entertainment expenses are.
Staff Entertainment: Limited Company Allowable Expenses
Expenses related to entertaining employees can be allowable, but HMRC has strict conditions for what you can claim. For example, the entertainment must be annual, such as a Christmas party or summer event, and it must be open to all employees. The total cost of the entertainment cannot exceed £150 per person per year.
Client Entertainment: Limited Company Allowable Expenses
Any money spent entertaining clients is not an allowable expense for tax purposes, so you can’t claim for things like client lunches and dinners, sports tickets or concert tickets, hospitality events or gifts over a certain amount. You can still pay for these through the business, but they won’t reduce your taxable profit.
Common Mistakes to Avoid with Limited Company Expenses
If you want to maximise your bottom line, you need to avoid these business expense management mistakes. HMRC can be strict, and mistakes can lead to investigations or penalties. That’s why it’s so important to know what you’re doing.
- Claiming Dual-Use Expenses - Items with both personal and business use - for example, a personal mobile phone that you also use for business - must be apportioned. Only the business-use percentage is allowable, not the total cost.
- Claiming Personal Meals - You cannot claim for meals when you’re working at home or from your own office. Subsistence is only allowable when working away from your usual base.
- Not Keeping Proper Records - HMRC expects receipts or invoices for every claim, and there’s always a chance they’ll ask. If you can’t produce them in an audit, you could lose the deduction and face fines.
- Misclassifying Entertainment - Always separate staff entertainment from client entertainment, as they don’t fall into the same category. Keep clear notes and categories in your accounts, to ensure you’re always on top of things.
Managing your expenses isn’t just about saving tax, it’s also about avoiding mistakes that could cost more than you save. This is why many contractors hand over this responsibility to a professional limited company accountant.
- They Know Every Allowable Expense - A limited company accountant can help you legally claim every deduction possible, some of which you may not even know exist.
- They Keep You Compliant - There’s no more guessing about grey areas like travel or training when you’re working with an expert. A limited company accountant gives you confidence that your claims meet the rules and regulations set out by HMRC.
- They Save You Time - Bookkeeping, logging receipts and categorising expenses are all time-consuming, and not all business owners have the time to spare. Letting an expert handle it means you can focus on clients and contracts.
- They Help with Tax Planning - A good limited company accountant doesn’t just record your numbers, they help you plan ahead, advising on when to invest, how to structure dividends and how to boost take-home pay efficiently.
Understanding allowable expenses, and where entertainment costs come into things, is essential for contractors looking to operate efficiently and grow their bottom line. The rules can be complicated and mistakes can be costly. But, Go Limited is here to help. With the right approach you can build an expense management system that maximises your bottom line, minimises risk and keeps your finances accurate.
Frequently Asked Questions (FAQ) on Limited Company Expenses & Entertainment Costs
1. Can I backdate expenses from before my company was officially set up?
Yes, you can claim pre-trading expenses that were incurred up to 7 years before your company started trading, as long as they were wholly and exclusively for the business. Be sure to keep receipts and evidence.
2. What happens if I accidentally claim a non-allowable expense?
If HMRC audits your accounts and finds incorrect claims, you may be asked to repay the tax, face penalties, or pay interest. It’s best to correct any mistakes as soon as they’re identified.
3. Are business gifts considered entertainment or an allowable expense?
Business gifts are generally not allowable unless they meet strict HMRC criteria (e.g. under £50, not food/alcohol/tobacco, and carry a clear business logo). Gifts to employees are treated differently and may be taxable benefits.
4. How does VAT work with allowable expenses?
If you're VAT-registered, you can usually reclaim VAT on allowable business expenses. However, you cannot reclaim VAT on client entertainment, even if you paid VAT on the invoice.
5. Can I claim expenses for using my car for business?
Yes, if you use your personal car for work journeys (not commuting), you can claim mileage at HMRC's approved rates (e.g., 45p per mile for the first 10,000 miles). Alternatively, if the company owns the car, different rules apply.
6. Do I need to submit receipts for every expense?
While you don’t need to send receipts with your tax return, you must keep them for at least 6 years in case HMRC requests evidence. Digital copies are acceptable.
7. Can I claim training courses as an allowable expense?
Yes – but only if the training relates to your current trade and helps you maintain or update existing skills. Courses that teach you new skills (e.g. changing careers) are not allowable.
8. What’s the difference between entertaining staff and entertaining clients, tax-wise?
Staff entertainment can be allowable if it meets specific criteria (e.g., annual event, open to all staff, under £150/person). Client entertainment is never allowable for corporation tax or VAT purposes.
9. Can I claim for working from home even if I rent an office?
Yes, if you do genuine business tasks from home, you can claim a portion of your household bills – even if you also rent an office space. However, claims must be reasonable and well documented.
10. How do I prove an expense was for business purposes?
Keep clear records, including receipts, bank statements, and notes explaining the expense's business use. Software that lets you add notes or categories to expenses can be especially helpful during a HMRC review.
Important:
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.
