Limited company expenses & tax allowances guide

The advantages to setting up a limited company are:

• Owners aren't fully liable
• Tax savings
• Using a limited company structure lends credibility to your business
  

The costs incurred for engaging professional services-such as hiring an accountant, lawyer or architect-can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Employers who purchase bicycles and safety equipment for loan to employees can benefit from treating the purchase as capital expenditure eligible for corporation tax relief. VAT can also be claimed back on the purchase unless you are registered on the VAT flat rate scheme.

The loan of bicycles and safety equipment under the cycle to work scheme removes any tax charge to the employee that would usually arise on a taxable benefit.

Yes, you can claim the costs of social media ads as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

The 24-month rule, also referred to as the two-year rule, enables contractors to claim travel expenses from their home to a client's office, as long as it is classed as a "temporary workplace".

The following conditions must apply for a work location to be classed as a "temporary workplace"

• The period of engagement is less than 24 months
• The contractor should spend less than 40 percent of their time at the workplace
  

Essentially, if you work at the client's office for more than 24 months, or spend more than 40 percent of your time at the location, it is considered a permanent workplace-and as such, you won't be able to claim travel or subsistence expenses.

Bear in mind that this is subject to the SDC legislation introduced in April 2016. Further elaboration on SDC can be found in our guide to claiming expenses as an umbrella company contractor.

Yes, you can claim the purchase of computers as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

The HMRC approved mileage rates are as follows:

You can claim travel-related expenses, as long as the travel is wholly and exclusively for business purposes and isn't considered 'ordinary commuting'. HMRC defines a commute as a trip that you make between your home and a permanent workplace.

You can claim for:

• costs associated with running a car or vehicle, such as fuel expenses, parking fees and tolls.
• transport fares for flights, as well as rides taken via train, bus, taxi and ferries
• meals and accommodation for overnight business trips
  

You can claim "reasonable" food and drink expenses if:

• You're making an occasional business trip outside of your normal pattern of travel
• You're staying overnight, and are also claiming accommodation costs
• Your trade is, by nature itinerant
  

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

To register a business as a sole trader, you need to:

• Register as self-employed with HMRC
• Choose a business name
  

Once you've registered, you need to fulfil your responsibilities as a sole trader. These include:

• Keeping records of your sales and expenses
• Submitting a Self Assessment tax return each year
• Paying income tax and National Insurance Contributions
  

To set up a limited company, you need to:

• Decide what type of limited company you need
• Choose a business name
• Choose how to set up your limited company
• Complete the company formation process
• Open a business bank account
• Inform your stakeholders
• Get your VAT registration or transfer sorted out
• Set up your payroll
• Update your company details
• Get your books sorted out
  

To set up a business partnership, you need to:

• Choose a business name
• Choose a ‚Äònominated partner'
• Register with HMRC

General travel expenses can't be claimed as a deductible business expense. You can only claim for travel-related expenses as long as the trip is made wholly and exclusively for business purposes, and isn't considered 'ordinary commuting'.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

You can claim an eye test as an allowable expense, if it is required for the use of visual display equipment in your work.

In general, you can't claim for glasses or contact lenses unless these items are 'wholly and exclusively used for business purposes', and you're able to prove that you don't use them outside of your working houses. One example would be that you have several pairs of glasses, one of which is used only when you're at work.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

The 24-month rule, also referred to as the two-year rule, enables contractors to claim travel expenses from their home to a client's office, as long as it is classed as a "temporary workplace".

The following conditions must apply for a work location to be classed as a "temporary workplace"

• The period of engagement is less than 24 months
• The contractor should spend less than 40 percent of their time at the workplace
  

Essentially, if you work at the client's office for more than 24 months, or spend more than 40 percent of your time at the location, it is considered a permanent workplace-and as such, you won't be able to claim travel or subsistence expenses.

Bear in mind that this is subject to the SDC legislation introduced in April 2016. Further elaboration on SDC can be found in our guide to claiming expenses as an umbrella company contractor.

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While there isn't a legal or formal definition of the term, personal service companies (PSC) refer to limited companies that are owned by a contractor, who is also the only shareholder and sole director. In some instances, the company may also be owned by a very small group of individuals.

You can claim PayPal charges as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.

The drawbacks to setting up a limited company include:

• There are additional filing and reporting requirements to adhere to.
• Reduced privacy
  

As a sole trader, you can't claim pension contributions as a deductible expense. However, you can get personal tax relief from contributions you make into your pension scheme.

If you're a limited company director, you have the option of making pension contributions through your company. This will reduce your company's profits, and as such reduce the amount of corporation tax your company pays.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

• Christmas expenses overview
• Staff party claims
• Gift voucher claims
• Gift claims

• Allowable business expenses
• Employee expenses
• Travel expenses
• Office & equipment expenses
• Professional services expenses
• General expenses

You can claim "reasonable" food and drink expenses when you're travelling for business, if:

• You're making an occasional business trip outside of your normal pattern of travel
• You're staying overnight, and are also claiming accommodation costs
• Your trade is, by nature itinerant
  

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

The costs incurred for engaging professional services-such as hiring a lawyer-can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Where possible, it is advisable to cover any company expenditure directly using company funds such as directly via the company bank account. This ensures that all company transactions are kept in one place and can be easily tracked.

You need to keep your receipts for expenses for at least five years after the 31 January submission deadline for the relevant tax year.

It helps to minimise paperwork wherever possible, so we recommend taking a picture of your receipts and storing these images away digitally. You can use cloud storage platforms like Dropbox or an expenses app like Expensify.

Yes. You can claim pre-trading expenses of up to seven years before the incorporation date of your limited company, as long as these expenses have been paid for with your own money and were incurred ‘wholly, exclusively and necessarily' for setting up your business.

Examples of pre-trading expenses you can claim for include:

• Internet and domain name fees
• Purchase of computer equipment and software
• Accountancy and other professional fees
• Travel costs
• Insurance
• Stationery
  

To learn more about allowable business expenses, read our expenses and tax allowances guide for limited company directors.

Allowable business expenses are costs that you can claim as a deduction against your revenue, which reduces the amount of tax you need to pay.

Here's an example: if your revenue is £35,000 and your allowable expenses total at £5,000, you'll just be taxed on £30,000.

The rules surrounding allowable business expenses aren't always straightforward, and this is where our guide comes into play.

In this article we will run through the most common expenses that sole trader businesses claim for, along with tips you can implement to ensure that you are keeping proper records.

Bear in mind that this isn't a definitive guide, so if you need personalised advice, it's best to consult our accountants atForma.

You can't claim for the costs of entertaining clients, suppliers and customers.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a limited company director, you can can claim for the costs of hosting a staff party, as long as the following conditions apply:

• Your cost per pax shouldn't exceed £150 (including VAT). Your employees may invite a partner, and if they do, your total budget for an employee and an additional guest will be £300.
• The main purpose of the event is to entertain your staff members. As such, most of the event attendees should be your employees.
  

Do note that the per pax budget of £150 applies across the year, so you can claim for several staff events as long as the costs fall within the budget. You can claim this expense even if you're the sole employee in your business.

As a sole trader, you're not considered an employee. As such, you can't claim the costs unless you have employees.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a limited company director, there are various allowable business expenses you can claim for. These include (and aren't limited to):

• Pension contributions
• Staff expenses
• Business mileage
• Mobile phone, landline and broadband expenses
• Costs of forming your company
  

Further information on the types of expenses you can claim for can be found in our limited company expenses and tax allowances guide.

As a sole trader, you can't claim for the line rental if you're using your mobile phone for business and personal use. You can claim the costs of business calls, if these are indicated on an itemised bill. To claim for the costs, you'll need to set up a mobile contract under your business name, and use it solely for business purposes.

As a limited company director, you'll need to set up a contract between your company and service provider in order to claim the full costs as a deductible business expense. If the contract is made under your personal name, you won't be able to claim the costs as an expense.

Refer to our guide on mobile phone expenses for further information.

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

As a self-employed person, there are two ways to calculating the allowance you can claim for working from home. You can claim a fixed rate of £6 per week, or a proportion of household costs used by the business. Further information is available on our resource on the use of home allowance.

Yes, you can claim office costs (such as the purchase of stationery) as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

• What is a Limited Company
• 10 step process for setting up a Limited Company

You can claim an eye test as an allowable expense, if it is required for the use of visual display equipment in your work.

In general, you can't claim for glasses or contact lenses unless these items are 'wholly and exclusively used for business purposes', and you're able to prove that you don't use them outside of your working houses. One example would be that you have several pairs of glasses, one of which is used only when you're at work.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

To set up a limited company, you need to take the following steps:

• Decide what kind of limited company you need
• Choose a business name
• Choose how to set up your limited company
• Complete the company formation process
• Open a business bank account
• Inform your stakeholders
• Get your VAT registration or transfer sorted out
• Set up your payroll

Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.

We'll walk you through how to register your company for free and the perks that you'll get with each.

You can claim the costs of purchasing computer software that your business uses for less than two years. You can also claim for computer software that you use for more than two years, if your company makes payments regularly to renew the license.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a sole trader:

If you're using your mobile phone line for both business and personal use, you can't claim for line rental. However, you can claim for call costs for business use if you obtain an itemised bill. If you have a separate mobile phone line for business use, you can claim the costs incurred.

As a limited company director:

1. Mobile phone: If your mobile phone contract is between your company and mobile phone provider, and is used for solely business purposes, you can claim the entire bill as an allowable expense.

If you have a personal contract, you can claim for the costs incurred for business calls. You're also able to reclaim the VAT element of the business calls.

2. Landline: If your landline contract is solely for business use, you can claim the cost as an allowable expense. You can also claim for business calls you've made using your home phone line.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Being self-employed often means having to juggle multiple roles and tasks.

Amidst all your different responsibilities, keeping track of your business mileage can appear tedious-and it can easily become a task that you postpone time and time again. Yet, these little trips can add up, and as a small business owner, it's important that you make the most of what you can claim.

If you're newly self-employed, or just want to get a grasp on the basics of claiming your business mileage, this article is for you.

It explains the essentials, including how you can calculate your costs, the records you need to keep, and other important information that you need to be aware of.

Both business owners and employees can claim business mileage.

Taxi fares are generally deductible, as long as the fares aren't incurred for ordinary commuting. According to HMRC, a commute is a trip you make most days between your home and permanent workplace.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

There are two methods you can use to work out your allowable home expenses: you can claim a flat rate allowance (also known as simplified expenses), or claim a proportion of your bills. For further information on these methods, refer to our expenses and allowances guide for limited company directors and the self-employed.

If you're a sole trader and aren't sure which method is the better option for your business, you can use Gov.uk's simplified expenses checker tool.

The portability of a laptop brings in a layer of complexity, as they tend to be purchased for both business and personal use. You can claim it as an expense, but you will need to apportion between business and personal use.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

You can claim parking costs as a deductible expense, as long as it is incurred wholly and exclusively for business purposes. Other allowable business travel expenses include tolls and congestion charges. You can't claim parking fines as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Yes, you can claim eBay fees, such as the insertion fee and final value fee as deductible expenses.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a sole trader, you can't claim childcare costs as a deductible business expense. However, you can claim tax relief through the tax-free childcare scheme.

As a limited company director, you can't claim childcare costs as a deductible business expense. However, you can claim tax relief through the childcare voucher scheme or tax-free childcare scheme.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Yes, you can claim the costs of attending business-related conferences as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

Business insurance costs can be reclaimed through your business and are eligible for Corporation Tax relief.

Professional development costs can be claimed as an allowable expense, as long as the course content directly relates to your trading activity.

Training courses that you attend to learn a new skill-which you can use to expand into a new industry or offer different services-aren't allowable, unless you can show that these courses are helping you build up on your existing skills or knowledge.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

• A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
• A Limited Company is usually more tax efficient than being a Sole Trader.
• Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

The costs of purchasing magazines, books and journals can be claimed as a deductible expense, as long as these items are required for your business (e.g. trade publications, professional journals, training materials).

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

If you're renting an office, you can claim utilities as a deductible expense.

If you're using your home as an office, you'll need to work out the proportion of your utilities that you can allocate to business use in order to claim these costs as a deductible expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

As a limited company director, you want to run your business in the most tax efficient way possible.

One way to achieve this is to claim for allowable business expenses correctly, so that you don't wind up having to pay more tax than you are legally obliged to.

It can be tricky figuring out what you can or cannot claim for, and this is where our guide comes into play.

We'll run through the different expenses you can claim for, but bear in mind that this isn't a definitive guide. Do check out our resource hub on limited company tax topics for more information, or consult our specialist accountants at Forma if you need personalised advice.

Yes, you can claim office rental and the costs of using a coworking space as a deductible business expense.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.

There are a couple of ways to go about registering a limited company:

• Register directly through Companies House
• Go through a third party: An accountant or company formation service can help you process your application, significantly lessening your admin burden. Beyond the application, a good third-party service can also provide accounting advice, help you fulfil your filing obligations and assist with other admin tasks.
  

We've included further details in our guide on setting up a limited company.

Expenses are important as you can claim them against your revenue, which helps to reduce the amount of tax you need to pay.

For further information on the types of expenses you can claim, refer to our guides for sole traders and limited company directors.

Advisory fuel rates are recommended repayment amounts a company can use when reclaiming the fuel element on business mileage.

The rates are used to calculate:

• How much employers should reimburse employees for business travel using the company car
• How much employees need to repay employers for private travel using the company car
• The VAT you can claim back on business mileage using your personal vehicle

If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.

Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.

One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.

While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:

• How much tax you pay
• Your degree of personal liability should the business fail
• How much administrative work is involved in the business (both before it comes to fruition and over the course of its life)
• Your ability to finance and fund your efforts

If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.

Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.

When you set up a limited company, you'll enjoy many advantages you don't get as a sole trader. Not only is it a tax-efficient way to run your business, it's also a great way to limit your personal liability and increase your credibility with customers. Additionally, it could open new avenues of work that wouldn't be open to you if you were operating as a sole trader, especially some contractor roles.

One of the disadvantages of running a limited company is that it involves a lot of paperwork, but with the help of this guide, we'll clear away the jargon and tell you exactly what you need.

If you're unsure about whether a limited company is right for you, check out our handy article comparing the differences between Limited companies and Sole Traders to see which business entity is right for you.

If you've got more important things to do than dealing with extra admin, you can always take advantage of one of our accountancy packages and we'll do all the forms and applications for you.

There are two methods you can use to work out your allowable home expenses: you can claim a flat rate allowance (also known as simplified expenses), or claim a proportion of your bills. For further information on these methods, refer to our expenses and allowances guide for limited company directors and the self-employed.

If you're a sole trader and aren't sure which method is the better option for your business, you can use Gov.uk's simplified expenses checker tool.

You can reclaim marketing expenses as long as these are used solely for business purposes. This applies to both one-off costs and ongoing fees.

For further information on allowable business expenses, refer to our expenses and allowances guides for limited company directors and the self-employed.