A Comprehensive Guide to Allowable Limited Company Expenses in London UK

Juggling numerous expenses at the end of the fiscal year is a tedious and confusing task. You must know which expenses you can or can’t claim as business expenses to maximise your take-home profits.

So, what are the allowable expenses for a limited company? Allowable expenses include expenses related to employees, travel, administrative processes, financial processes, and many more. We want to break the allowable expenses down into smaller bits to give you a clear idea.

By the end, you will learn all the allowable limited company expenses to maintain legal compliance and ensure you don’t pay even one pence more than required. Let’s get started.

What Are Allowable Expenses for a Limited Company?

Running a limited company requires expenses in a wide variety of fields, such as employee salary, travel expenses, stationery bills, and many more. Among business expenses, you get tax exemptions for specific expenses. For example, you don’t need to pay tax on the lunch expenses of employees.

There are a lot more allowable expenses that you can claim while filing your tax returns. This way, you can minimise the amount of deductible tax. In case your total expense is £35,000, and the allowable expense is £10,000, you just need to pay tax on £25,000.

Which Limited Company Expenses Are Allowable?

According to HMRC regulations, there is a long list of allowable expenses for a limited company. We compiled the allowable expenses for your convenience. If you are confused about any expense that isn’t covered here, our tax specialists are there to help you.

“An investment in knowledge pays the best interest,’ and understanding allowable limited company expenses is a key investment in your business’s financial success.”

Benjamin Franklin

Employee Expenses

Multiple expenses that fall under allowable expenses go into this category. Having a clear idea of these expenses can make your company more tax-efficient.

Staff Salary: The amount of pay a company offers to its staff is considered allowable expenses. So, limited companies don’t need to pay taxes on these expenses. The salaries of directors are also exempted. Remember, you need to maintain NIC guidelines while calculating payable tax.

Lunch and TA: Employees may often spend money on food and transportation while performing tasks assigned by the company. The company can reimburse employees for these expenses and show them as allowable expenses during tax calculations.

Healthcare Expenses: Medical insurance for employees isn’t considered an allowable expense unless employees work overseas. Treatment expenses for overseas employees are allowable. Also, if your company pays for employees’ health checkups, one expense per year is allowable.

Pension and Trivial Expenses: Pension contributions from the company fall under limited company business expenses in London, UK. You get a 100% exemption on the contribution as long as it is under £60,000. Besides, the expenses for employee entertainment are also allowable.

Annual Event Expenses: If your company holds annual events or parties for the staff, the expenses are allowable according to HMRC regulations. The condition is the expense per staff can’t exceed £150 in a year. If there is one additional guest with each staff member, the cost limit is £300 a year.

Travel Expenses

The expenditure on all vehicles exclusively used for business purposes is allowable. For example, allowable expenses include the cost required to finish assigned tasks, go from one workplace to another, etc. There are multiple tiers for the mileage claim with the HMRC. However, these limited company expenses will be allowable under certain conditions.

• The travel expenses should be specific for business purposes only. If personal purposes are combined with the expenses, they will not be allowed.
• Ordinary commuting doesn’t fall under allowable expenses.

The rate which you can claim for travel expenses is given below.

1. If the mode of transportation is a car or van, the rate is £0.45 per mile for up to 10,000 miles. Beyond that, the rate will go down to £0.25 per mile.
2. For motorcycle expenses, the rate is £0.24 per mile. Remember, this rate will be the same regardless of the mileage. 
3. Bicycle expenses are allowable at a rate of £0.20 per mile with no mileage tier or limits. 
4. Other than the mileage claim, other business expenses, such as accommodation costs for business purposes, are also allowable. Our accountants can give you an in-depth guideline on how to leverage these exemptions.

Administrative Expenses

The costs of running a limited company, such as stationery expenses, communication expenses, etc., are included in this category. Here is a quick breakdown of the allowable expenses for running a limited company.

• Stationery Expenses: All costs of stationery items required to run the company fall under allowable expenses.

• Equipment Expenses: Office equipment, such as computers, printers, routers, etc., can be shown as allowable expenses. You can claim a 130% deduction if you purchase machinery for plants. 

• Phone and Broadband Expenses: Whether the mobile or landline bill, the whole cost is allowable if used only for business purposes. The same is true for broadband costs for business purposes.

Why Should You Hire Tax Professionals for Allowable Expenses?

Allowable expenses have nooks and crannies that are hard for a limited company to discover independently. Expert professionals have extensive knowledge about tax regulations and can help limited companies in the following ways.

• Minimising Tax Deduction: If allowable expenses are calculated correctly, the tax liability on a limited company is reduced. So, the company can end up paying less in taxes.
• Improving Efficiency: When all the allowable expenses are accounted for, limited companies can easily find areas that require improvement.

Complying with HMRC Regulations: With precise allowable expense calculations, professionals can help limited companies avoid fines.

Conclusion

Allowable expenses are a crucial part of tax calculation for any limited company operating in the UK. Multiple expenses can be claimed as allowable costs to reduce the overall taxable amount. Besides regulatory compliance, businesses can earn higher profits by claiming these expenses correctly.

Tax Nest specialises in allowable expenses for a limited company to provide accurate and efficient services. Contact us to learn more about the process.