Contractors Limited Company Limited Company Expenses
Professional Online Accounting for Contractors and Small Businesses
Limited Company Expenses
There are two categories of qualifying expenses that are commonly defined as either Schedule D (incurred by the business) and Schedule E (incurred by the employee)
- Schedule D (company expenses) Incurred wholly & exclusively for the business to be deductible against corporation tax.
- Schedule E (employee expenses) Incurred wholly, exclusively & necessarily for the performance of the duties.
Expenses lower the Corporation Tax of the limited company.
When Schedule E expenses are incurred that is not necessarily incurred, it is an allowable deduction for Corporation Tax but a Benefit in Kind charge will apply to the employee (the company will pay Class 1a National Insurance Contribution.
Expenses that are a mixture of business and personal costs are non-allowable (with some exceptions).
Type of Expense |
Criteria |
| Accountancy | All fees including advice pre-incorporation are allowable. |
| Accommodation | Whilst staying away from the primary residence for the performance of your duties, hotel or B&B and accommodation may be claimed. Property rental is allowable where it satisfies the rules. |
| Advertising | Where the advertising is not a capital investment it is an allowable expense where it is in the course of the business. |
| Air Fares | Air fares are allowable. |
| Annual Return Fee | Allowable, often charged by your accountant as a disbursement if they file and pay the annual return on your behalf. |
| Bad Debts | Bad debts may be written off the profit and loss account after they have been unpaid for a period of 6 months. |
| Bank Charges | Bank charges that are authorised, such as a transaction or exchange charge; are allowable. Charges such as an unauthorised overdraft fee are non-allowable. |
| Bicycles | Under HMRC approved mileage allowance each mile may be claimed at 20p. |
| Broadband Internet | If the contract is between the broadband supplier and the company then it is an allowable expense. If the employee is required to work from home and there is an additional cost, say to install or upgrade, then that cost and the monthly fees are an allowable expense. |
| Business Gifts | Where a gift is made that has a business element, for example a mug with an advert on then it is an allowable expense. |
| Business Start Up | The cost associated with incorporating the company and setting up of the VAT and PAYE registrations are allowable. |
| Capital Allowances | Capital allowances attract 100% relief to offset in the first year against corporation tax if valued up £100,000. Cars with low COâ‚‚ emissions, natural gas, and hydrogen qualify. |
| Car Hire | If the vehicle is hired purely for business use, the whole expense is allowable. |
| Childcare Vouchers | Childcare Vouchers can be paid from employers to employees who have at least one child in the care of a registered child care provider. You can claim up to £55 per week |
| Christmas Gifts | For one director companies Christmas gifts are not allowable. |
| Charitable Donations | Donations to a registered charity are allowable providing they do not put the company into a loss making position. |
| Clothing | Where the clothing is a specific uniform with either company branding or for health and safety purposes then it is an allowable expense. |
| Company Incorporation | The company can reimburse the director for the full cost if they incurred it. |
| Computer equipment | Equipment is treated as an asset and 100% relief is given against corporation tax in the first year up to a maximum £100,000. |
| Depreciation | Depreciation is an expense that is deducted in the profit and loss account and then added back in for corporation tax purposes. |
| Director Salary | Salaries are allowable and the amount should be set according to the individual's remuneration strategy including attitude towards risk. |
| Dues to Professional Bodies | Section 201 ICTA 1988 allows professional fees to be deducted against corporation tax. The fees must be relevant to the business duties of the employee. |
| Entertainment | Entertainment whereby you take a client out for dinner is not allowable against tax. The company can however reimburse the director if they have paid. |
| Eye Tests | Employees who are required to use a monitor in the performance of their duties are able to be reimbursed the cost of an eye test without it being a benefit in kind. |
| Foreign Exchange | Any exchange rates, (approved by HMRC by courtesy of the Financial Times), associated with exchanging business money are an allowable expense. |
| Hire and Rental | If the hire of equipment is for the business then it is an allowable expense. |
| Hire Purchase | Allowable when the contract is in the company name. |
| Home Working Expenses | A round sum allowance of £3 per week may be claimed as an expense, with no supporting evidence. |
| Incidental Overnight Expenses | Where an employee is working away from home a fixed sum of £5 per night (£10 for working abroad) may be claimed to cover incidental costs such as telephone calls, a newspaper or laundry. |
| Insurance | A limited company that has any employees other than its director/shareholder is legally obliged to have Employer's Liability insurance. Professional Indemnity insurance must be in place if specified in a contract for services. Other and all insurances may be claimed as an expense. |
| Interest on loans | Interest charged on business loans or alternative finance payments is allowable. |
| Leasing rental | On a finance lease, the item on lease is written into the balance sheet as an asset with depreciation charged against it.An operating lease payment is treated as rental and is allowable against corporation tax. |
| Legal Costs | Legal costs for business purposes are allowable providing they are not costs incurred for fraud, fines, and illegal actions or related to capital items. |
| Magazines and Books | Where the publication is wholly for business use the expense is allowable. |
| Marketing Costs | Marketing is an allowable expense. |
| Medical Insurance | Annual medical check-ups provided to an employee are allowable against corporation tax and do not incur a benefit in kind charge. |
| Medical Treatment | Medical treatment is allowable and a benefit in kind charge would not apply whereby the employee incurred the treatment directly associated to injuries or diseases related to work, and is paid directly to the supplier by the employer. |
| Mileage | A rate of 45p for a motor vehicle is payable for the first 10,000 business miles reducing to 25p thereafter in a tax year. Mileage for motorcycles is a fixed rate of 24p for all miles and 20p for bicycles. |
| Mobile Telephone | Mobile phones provided to employees are allowable against corporation tax. |
| Motor Vehicles | Motor vehicles are an asset of the company and a capital cost which is reflected on the balance sheet and against which depreciation is charged. |
| Office Parties | Office parties are an allowable expense. |
| Office Rental | Office and virtual office rental is allowable. |
| Parking | Parking is an allowable expense. |
| Pension Contributions | Contributions made by the company to an executive company pension scheme are a tax deductible expense. |
| Postage | Postage is allowable. |
| Professional fees | Professional fees that are wholly incurred for the business are allowable against corporation tax. |
| Printing | Printing is an allowable expense. |
| Repairs | The cost of routine maintenance or repair of an asset is an allowable expense. |
| Salaries and Wages | Salaries or wages and the employer's national insurance contributions are an allowable expense. |
| Software | Software with a life expectancy below 2 years is an allowable business expense. |
| Stationery | Stationery is an allowable expense. |
| Subsistence | Subsistence may be claimed when on a business journey or for an employee on a temporary assignment whose place of work is not the permanent place of work e.g. a contractor. |
| Taxi fares | Taxi fares for business travel are allowable. |
| Telephone | A landline telephone that is billed to the company is an allowable expense. Where a home landline is used for business use then the call costs may be claimed. |
| Training | Training costs to update or enhance an existing skill are an allowable expense. |
| Training Manuals or Books | Where the book or manual is relevant to the business then the expense is allowable. |
| Travel | Travel expenses for business purposes are an allowable expense. |
