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Your business pays tax on profit, not on everything it earns. Allowable business expenses are the costs HMRC lets you deduct from your income before that profit is taxed, so claiming them properly reduces your tax bill. The test that decides what qualifies is the same one HMRC has used for decades: the cost must be incurred wholly and exclusively for the business.
This guide explains what counts as an allowable expense, how limited companies claim against corporation tax, the difference between revenue costs and capital spending, and the specific items businesses ask about most. If you run as a sole trader rather than through a company, the rules differ, and we cover those in our guide to self-employed allowable expenses.
What are Allowable Business Expenses?
An allowable business expense is any cost your business takes on purely to trade. HMRC’s wholly and exclusively rule means the spending has to be for the business and nothing else. A cost that serves a personal purpose as well as a business one is not automatically allowable, though you can often claim the business share of a genuinely mixed cost.
Claiming these costs is how you lower taxable profit. For a limited company, every pound of allowable expense reduces the profit your corporation tax is calculated on. For HMRC’s full position on the wholly and exclusively test, the Business Income Manual sets out how borderline cases are judged.
Revenue Costs and Capital Spending: The Line That Matters
Before you total anything, separate your day to day running costs from your capital spending, because HMRC treats them differently.
Revenue costs are the recurring expenses of trading, such as wages, rent, stock, and utility bills. You deduct these in full against the profit of the year you incur them.
Capital spending buys something lasting, such as machinery, computers, or a van. You usually cannot deduct the whole cost as a simple expense. Instead, you claim it through capital allowances, which the section below explains. Getting this distinction wrong is one of the most common reasons a return gets queried, so it is worth settling early.
Allowable Expenses Your Business Can Claim
Staff and Director Costs
Wages and salaries you pay employees are allowable, along with Employer’s National Insurance, pension contributions, bonuses, and the cost of benefits you provide. For a limited company, a director’s salary is an allowable expense for the company, which is one of the main planning differences between trading through a company and trading as a sole trader. Payments to genuine subcontractors are allowable too.
Premises Costs
Rent, business rates, heating, lighting, water, and insurance on your business premises are allowable. If a director works from home for the company, the company can pay a flat £6 a week towards household costs without needing to evidence the amount, or reimburse a calculated share of actual costs where the working arrangement supports it.
Office, Equipment and Software
Stationery, printing, postage, business phone and broadband, and subscription software are allowable running costs. Smaller items of equipment are deductible, while larger purchases that will last several years usually fall under capital allowances rather than being claimed outright.
Travel and Mileage
Business travel is allowable, but the ordinary commute to a permanent workplace is not. Where a director or employee uses their own car for business journeys, the company can pay tax-free Approved Mileage Allowance Payments of 45p a mile for the first 10,000 business miles in the year, 25p a mile after that, and 24p for motorcycles. [Verify: gov.uk business travel mileage rates.] Where the business owns or leases the vehicle, you instead claim the running costs through the company, and the driver may face a benefit-in-kind charge. Rail, air, taxi fares, hotel stays, and reasonable subsistence on business trips are allowable.
Professional and Financial Costs
Fees you pay to run the business properly are allowable. That covers accountants, solicitors, and other professional advisers, professional indemnity and business insurance, bank and merchant charges, and interest on business borrowing. Relevant life cover taken out by the company for an employee or director can also be an allowable expense, which is a useful and often missed claim.
Stock, Raw Materials and Direct Costs
The cost of goods you buy to resell, the raw materials that go into what you produce, and the direct costs of delivering your service are all allowable.
Marketing and Advertising
Promoting the business is allowable. Website costs, online and print advertising, and directory listings qualify. Sponsorship is allowable where it genuinely promotes the business rather than funding a personal interest.
Training
Training that updates or maintains the skills your business already uses is allowable. Training that equips you for an entirely new trade is treated as capital and usually is not.
Capital Allowances: Claiming for Equipment and Assets
Capital spending on equipment, machinery, computers, and commercial vehicles is claimed through capital allowances rather than as an ordinary expense.
Most businesses use the Annual Investment Allowance, which lets you deduct the full cost of qualifying equipment in the year you buy it, up to the AIA limit. Cars do not qualify for the AIA and are dealt with under separate writing-down rules based on their emissions. If your spending in a year is below the AIA limit, in practice you can write most equipment off in full straight away, which is why many small businesses never reach the more complex writing down calculations.
What Your Company Can and Cannot Claim
Some questions come up again and again, so here are the common ones answered directly.
A laptop, computer, or tablet used for the business is allowable, claimed as equipment or through capital allowances depending on cost and your accounting. Business broadband and a business mobile contract held in the company’s name are allowable in full. Council tax is generally not allowable for a company unless part of a genuine and evidenced home working arrangement. Client entertaining, such as taking a customer to lunch or an event, is specifically disallowed for corporation tax even though it is a real business cost. Staff entertaining, such as a reasonable annual event for employees, is treated more favourably and can qualify within HMRC limits.
What You Cannot Claim
Several costs are never allowable, however closely they relate to the business. You cannot claim client entertaining, fines and penalties, personal expenses, or the personal share of a mixed-use cost. Capital purchases are not claimed as ordinary expenses, though they may qualify for capital allowances instead. Money set aside but not yet spent does not qualify.
How a Company Claims its Expenses
A limited company claims allowable expenses through its Company Tax Return, the CT600, which reports the profit after expenses that corporation tax is charged on. Keep the evidence behind every figure. A company normally has to retain its records for at least six years from the end of the accounting period they relate to, and for any mixed-use cost, keep the calculation that supports the business share.
If your business is approaching the VAT threshold or already registered, remember that VAT-registered businesses generally claim expenses net of recoverable VAT, with the VAT itself reclaimed on the VAT return rather than counted as a cost.
Frequently Asked Questions
What counts as an allowable business expense?
Any cost your business takes on wholly and exclusively for trading, such as staff wages, rent, stock, professional fees, business travel, and marketing. The cost must be for the business, not personal, and you keep records to prove it.
What business expenses are tax deductible for a limited company?
Revenue running costs are deductible against corporation tax, including salaries and Employer’s NIC, premises costs, equipment and software, business travel, professional fees, and advertising. Capital items such as machinery and computers are claimed through capital allowances instead.Any cost your business takes on wholly and exclusively for trading, such as staff wages, rent, stock, professional fees, business travel, and marketing. The cost must be for the business, not personal, and you keep records to prove it.
What can a business owner write off?
A business writes off its genuine trading costs against profit. For a company director, that includes a salary paid by the company, business travel in their own car at HMRC mileage rates, a contribution towards homeworking costs, and the running costs of the business. It does not include personal spending or client entertaining.
Can my company claim a laptop or phone?
Yes. A laptop used for the business is allowable, claimed as equipment or through capital allowances. A mobile contract in the company’s name is allowable in full, including private use, which is a specific concession for company-provided phones.
Are allowable business expenses the same as corporation tax allowable expenses?
For a limited company, yes. The expenses you can deduct from profit are the same costs that reduce the profit your corporation tax is calculated on, provided they meet the wholly and exclusively test and are not specifically disallowed, such as client entertaining.
Claim Everything Your Business is Entitled to
Most businesses either miss legitimate claims or stretch them too far, and both cost money. We work with limited companies and growing businesses across London, with offices in Tooting, Barking and Wimbledon, to make sure every allowable expense is claimed, correctly categorised, and properly recorded for HMRC.
Talk to our accountants about your business expenses and corporation tax, and we will show you exactly what your company can claim.
Muhammad Sufyan Moavia
Muhammad Sufyan Moavia, Chartered Tax Adviser and Fellow Chartered Certified Accountant at IBISS & CO.
He has 15 years experience in accounting and tax, advising individuals and business owners on personal tax, HMRC matters, IHT, CGT and tax planning.
Last review: July 2026
