YF AccountingLast updated: 1 July 2026
6 min read
Your limited company can deduct any cost it runs up wholly and exclusively for the business, which lowers the profit you pay Corporation Tax on at 19% or 25% in 2026/27. That covers the obvious things like salaries, software and stock, plus plenty that directors miss, from 55p a mile for business journeys to a £6 a week allowance for working from home and the full cost of most equipment.
Here is what a limited company can claim in 2026/27, what it cannot, and how much each expense actually saves you.
What counts as an allowable expense
The test HMRC applies is whether a cost is incurred “wholly and exclusively” for the purposes of the business. If it has a genuine business purpose, the company can put it through its accounts and it reduces the taxable profit.
Because a limited company is a separate legal entity, the expense needs to belong to the company. Pay for it from the business account, keep it in the company name where you can, and hold on to the invoice or receipt. Where a cost is part business and part personal, such as a mobile phone you also use at the weekend, you claim the business proportion rather than the whole bill.
Everyday running costs
These are the day to day costs of keeping the company trading, and they are usually the easiest to claim:
- Rent for business premises, a serviced office or a coworking desk
- Business rates, heating, lighting and water for those premises
- Stock, raw materials and direct project costs
- Office supplies, stationery and postage
- Accountancy, bookkeeping and payroll fees
- Business insurance, such as public liability and professional indemnity
- Bank charges and interest on business borrowing
- Software and subscriptions you use to run the business
- Advertising, marketing and your website
- The business share of phone and broadband costs
Paying yourself and your team
Salaries and wages, the employer’s National Insurance on them, and employer pension contributions are all allowable costs for the company. For most owner managed companies, a director’s salary is one of the largest deductions in the accounts.
Employer pension contributions paid by the company into a director’s pension are usually allowable too, as long as the overall reward package is commercially reasonable, with an annual allowance of £60,000 for most people. We cover this in our guide to pension contributions through your limited company.
Dividends are not a company expense. They are paid out of profit after Corporation Tax, so they never reduce the tax bill. Getting the balance between salary and dividends right is a separate decision, and we walk through it in our post on salary vs dividends in 2026/27.
Working from home
If you run the company from home, it can pay you a flat £6 a week, or £26 a month, towards your extra household costs with no records and no tax to worry about. It is small, but over a year it adds up and it takes minutes to set up.
You can claim more than the flat rate by working out the business proportion of your actual costs, but that needs a clear calculation based on the rooms you use and the time you spend working. One change to note: from 6 April 2026 employees and directors can no longer claim tax relief directly from HMRC for homeworking costs their employer has not paid back, so having the company reimburse you is now the route that works.
Travel and mileage
Business travel is allowable, including train fares, parking, tolls, accommodation and reasonable food on overnight trips. Ordinary commuting between home and a permanent workplace is not.
If you use your own car for business, the company can pay you HMRC’s approved mileage rate free of tax. The rate rose from 6 April 2026, so for 2026/27 you can claim 55p a mile for the first 10,000 business miles in the year, then 25p a mile after that. Motorcycles are 24p a mile and bicycles 20p, and you can add 5p a mile for a colleague who travels with you on the same business trip. Keep a simple log of the journeys.
Equipment, technology and larger purchases
Smaller items the company buys to do the work, such as a laptop, a phone, a desk or tools, are allowable. For larger purchases of equipment, the Annual Investment Allowance lets the company deduct 100% of the cost, up to £1 million a year, in the year you buy it.
Companies can also use full expensing, a 100% first year deduction on qualifying new plant and machinery with no upper limit. Between the two, most companies get full tax relief on equipment in the year of purchase rather than spreading it over several years.
Staff perks that are also tax efficient
A few benefits are allowable for the company and tax free for the person receiving them, provided you stick to the conditions:
- Trivial benefits: small gifts costing £50 or less each, as long as they are not cash and not a reward for work. Directors of a close company have a £300 cap across the tax year. See our post on trivial benefits.
- An annual event: a staff function such as a Christmas party is exempt if it is open to all staff and costs £150 or less per head for the year.
- A company mobile phone: one phone per person, in the company name, with no taxable benefit.
What you cannot claim
Some costs feel like business expenses but get no Corporation Tax relief:
- Client entertaining, which goes in the accounts but is added back when the tax is worked out
- Fines and penalties, such as parking tickets or a late filing penalty
- Everyday clothing, even if you only wear it for work, although genuine uniforms and protective gear are fine
- Anything personal, or the personal share of a mixed cost
- Dividends, and the cost of buying your own shares back
How much an expense actually saves you
Every £100 of genuine expense cuts your taxable profit by £100. At the 19% small profits rate that is £19 less Corporation Tax. If your profits fall in the marginal band between £50,000 and £250,000 the effective saving is 26.5%, and at the main rate above £250,000 it is 25%.
The aim is not to spend money for the sake of a deduction, since the company still carries most of the cost either way. It is to make sure every real business cost is captured, because the ones you forget quietly push your tax bill up. This post is part of our limited company tax guide, and if you are a sole trader instead, see allowable expenses for the self-employed.
Frequently asked questions
Can my company pay for my mobile phone?
Yes. If the contract is in the company’s name, one mobile phone per employee is tax free and the cost is fully allowable, even if you also use it privately. If the contract is in your own name, the company can only claim the business proportion of the call costs, not the whole bill.
Are dividends an allowable expense?
No. Dividends are paid out of profit after Corporation Tax, so they never reduce the company’s tax bill. Salaries and employer pension contributions do reduce it, which is why the mix of how you pay yourself matters.
What records do I need to keep?
Keep an invoice or receipt for every expense, record it in your bookkeeping software, and log your business mileage. HMRC can ask to see the evidence, and the wholly and exclusively test is far easier to pass with a clear paper trail. Companies must keep their records for at least six years.
Can the company reimburse costs I paid personally?
Yes. Genuine business costs you paid from your own pocket can be reimbursed by the company and claimed, as long as you keep the receipts. Costs you paid in the seven years before the company started trading can often be treated as pre-trading expenses and claimed too.
Is it worth using an accountant just to get expenses right?
Often, yes. Missed expenses quietly inflate your Corporation Tax bill, and the rules on home, travel, equipment and benefits change from year to year. Our fixed fee accounts and Corporation Tax service reviews your numbers so nothing claimable is left out, and it usually saves more than it costs.
Claim everything you are entitled to
At YF Accounting we look after limited companies for a fixed monthly fee, with one point of contact and proactive advice, so the costs you can claim do not slip through the cracks. Take a look at our pricing or get in touch for a quick chat about your company.
Founder of YF Accounting — a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
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How to Register for Self Assessment: A Step-by-Step Guide for 2026This article is part of our Limited Company Tax guide. See the full topic for related reads.