Important Notes
Assumption for company expenses is of single employee and on accrual basis by default unless stated otherwise.
Difference between Revenue and capital expense
Capital Items are generally assets which last more than a year and are not for resale as stock (e.g. computer, office desk, shelves, printer etc.) with monetary value of say £500 and above.
Revenue items are non-capital, mostly day-to-day lower value items (e.g. printer ink, paper, stationery, postage etc.).
Allowable Expense Test
All revenue expenses must have been incurred “wholly and exclusively” for running the business to be allowable. Expenses with a personal element are not allowable. Private-use proportions must be added back to taxable profit and VAT recovery restricted accordingly.
Business Invoice
Where applicable, invoices should be in the company’s name—this is crucial. Keep documentation for around six years after the accounting period end. If an invoice is not in the company name or the company did not pay, a P11D issue may arise.
What is P11D?
A P11D is filed yearly to report any expenses/benefits given to directors or employees (e.g. private healthcare, company cars, beneficial loans). These are taxable benefits that may need to be included on the individual’s Self Assessment. Employer Class 1A NIC may be due.
Client entertainment expenses (PR expenses)
Entertaining clients or prospects is not deductible for Corporation Tax. The company can still pay the cost, but it’s added back in the tax computation. (Separate from staff social functions — see below.)
Director loan
Money taken that isn’t salary, dividend, expense reimbursement or prior credit balance is a director’s loan and can trigger company and benefit rules (e.g., CTA s455 charge if still outstanding after year end; beneficial-loan benefit for the director). Beneficial loans are generally reportable on P11D with Class 1A NIC due on the benefit.
Home internet for business
If the broadband contract is personal and the company reimburses it in full, that’s typically a taxable benefit. Reimbursing only the business proportion with good evidence mitigates this. Where employers cover agreed homeworking costs, the tax-free allowance can apply
Home Office Rent
Either use the HMRC homeworking allowance (below) or, with a proper commercial licence/rental agreement, pay a proportionate rent (declared by the director as property income). Seek advice to avoid CGT or business-rates issues.
Personal Telephone and Mobile for company
One employer-provided mobile phone per employee is exempt (contract in the employer’s name). If the contract is in the employee’s name and the company pays/reimburses, it’s typically taxable and reportable.
Staff entertainment expenses (Annual staff party)
Exempt if all are met: it’s an annual function, open to all employees, and costs do not exceed £150 per head in the tax year (incl. VAT/transport/accommodation). Exceeding the cap means the whole event is taxable.
Use of Home as office (Work from home)
Employers can pay up to £6 per week (or £26 per month for monthly-paid staff) tax-free for regular homeworking, or reimburse actual additional costs with evidence.
Trivial benefits
Tax-free if all apply: cost ≤ £50, not cash/cash-voucher, not a reward for work, and not contractual/salary-sacrifice. For close-company directors (and household), there’s an annual cap of £300 total.
Childcare expenses
Childcare costs are not allowable business expenses.
Clothing and Evening wear expenses
Only protective clothing necessary for the job or uniforms (including branded clothing) are allowable. Some cases still require benefit reporting.
CPD and Training Courses
CPD, professional body subscriptions and job-related training are allowable when directly related to the role and trade. Salary-sacrifice funded training is not normally allowable as a business expense.
Donations to charity from your company
Donations to registered charities or CASCs are generally allowable.
Employee loans
Beneficial loans (below the official rate) usually create a taxable benefit (P11D/Class 1A NIC) unless an exemption applies.
Food and drink
- Food and drink on overnight business trips (reasonable).
- Tea, coffee and biscuits at the office for all staff.
- Free meals at a canteen available to all employees.
Hotel accommodation
Allowable when staying away from home for business and not near the permanent workplace. Also allowable at temporary workplaces (typically under 24 months).
Insurance
Policies should be in the company name and for business purposes (e.g., public liability, employers’ liability, PI, business contents).
Laptops and computers
Usually capital expenditure. No P11D where private use is insignificant.
Medical treatment (eye test expenses)
Where employees use screens for work, companies can cover eye tests and necessary corrective lenses related to VDU use.
Pension contributions
Company contributions to approved schemes are allowable (cash basis). Keep an eye on annual allowance rules.
Personal Car and Travel Expenses
Excludes ordinary commuting. Flights are allowable only if 100% for work (any personal element can disallow the whole cost). Mileage AMAP: cars & vans 45p/mile (first 10,000), then 25p; motorcycles 24p; bicycles 20p.
Professional fees
Legal/accountancy fees are allowable unless capital in nature. Some specific cases are disallowed—check HMRC.
Repairs to property
Repairs to company-owned property (revenue) are allowable. Repairs to personal property solely relating to the business-use part may also be allowable.
Shed Office
Garden office/shed is generally a structure (purchase/installation usually not CT-allowable). Inside fixtures/fittings may qualify for capital allowances; utilities/repairs are commonly allowable; VAT may be recoverable depending on use.