Running a limited company comes with a great deal of financial responsibility, and one of the most effective ways to keep your Corporation Tax bill as low as legally possible is to claim every allowable business expense you're entitled to. Yet many directors, particularly those newer to running a company, either miss out on legitimate claims or claim for costs that HMRC would disallow. Understanding exactly 

What counts as an allowable business expense for a limited company, and how the rules have changed for the 2026/27 tax year, can make a genuine difference to your company's profitability.

In this guide, we explain the general principles behind allowable expenses, run through the most common categories that limited company directors claim, and highlight the key updates you need to know about this tax year, including the increase to the HMRC mileage rate and the withdrawal of the flat-rate home-working allowance.

What Counts As An Allowable Business Expense?

HMRC's golden rule is that a cost must be incurred “wholly and necessarily" for the purposes of your trade to qualify as a limited company business expense. This principle is set out in section 54 of the Corporation Tax Act 2009, and HMRC applies it strictly. Where a cost has both a business and a personal element, sometimes described as ‘dual purpose’, it will generally be disallowed unless the business proportion can be clearly identified and reasonably apportioned.

Claiming allowable expenses reduces your company's taxable profit, which in turn reduces the amount of corporation tax you pay. It's a straightforward way to remain tax-efficient, provided every claim is genuine, properly evidenced and recorded correctly. HMRC requires limited companies to retain expense records, including receipts, invoices and mileage logs, for at least six years from the end of the relevant accounting period.

Common Allowable Business Expenses For Limited Companies

The table below summarises the most frequently claimed categories of limited company business expenses.

Staff Costs, Salaries And Pensions

Salaries paid to directors and employees, along with the employer's National Insurance Contributions, are fully deductible business expenses. Bonuses, benefits, agency fees, subcontractor costs and staff training are also allowable, provided they relate to the running of the business.

Employer pension contributions made into a registered scheme, whether for a director or an employee, receive full Corporation Tax relief and are one of the most tax-efficient ways of extracting value from a limited company. For the 2026/27 tax year, the annual allowance for tax-free pension contributions remains capped at £60,000, so it's worth reviewing your contribution strategy with an accountant before the end of the accounting period.

Accountancy, Legal And Other Professional Fees

You can claim tax relief on the full cost of accountancy fees, provided the work relates wholly to your company's affairs. If your accountant also prepares your personal tax return, that element must be treated separately, as it will be taxable to you personally as a benefit in kind. Legal fees, indemnity insurance premiums and other professional services incurred for business purposes are similarly deductible.

Business Travel, Subsistence And Mileage

Travel costs are allowable where you're travelling to a temporary workplace rather than commuting to your usual place of work. This includes train, bus, air and taxi fares, hotel accommodation, parking, congestion charges and reasonable food and drink costs while away on business.

If you use your own vehicle for business journeys, HMRC's Approved Mileage Allowance Payment rates apply. Following the Chancellor's announcement in May 2026, the first increase to these rates in fifteen years, the rate for cars and vans rose to 55p per mile for the first 10,000 business miles in the tax year, backdated to 6 April 2026, with the rate remaining at 25p per mile thereafter. Motorbikes are set at 24p per mile and bicycles at 20p per mile. Keeping an accurate, up-to-date mileage log is essential, as HMRC can refuse a claim without one.

Working From Home As A Limited Company Director

Home-working costs have historically been one of the simplest expenses to claim, with directors able to claim a flat rate of £6 per week without needing to provide detailed records. However, from April 2026 this flat-rate relief has been withdrawn, meaning companies must now reimburse the actual, evidenced additional costs of working from home, such as a proportion of heating, lighting and broadband, in order for the payment to remain tax-free. This makes accurate record-keeping more important than ever for directors who work from a home office.

Office Costs, Equipment And Capital Allowances

Day-to-day office costs such as stationery, postage, software subscriptions and computer consumables are fully deductible where used wholly for business purposes. Larger purchases, such as laptops, printers and office furniture, are usually treated as capital expenditure rather than a standard expense, but the Annual Investment Allowance currently offers 100% first-year relief on qualifying plant and machinery up to £1 million, meaning most equipment purchases can still be relieved in full in the year they're bought.

Insurance, Subscriptions And Training

Business insurance policies, such as professional indemnity and public liability cover, are fully allowable. Professional subscriptions and memberships are deductible where they're relevant to your trade and paid for by the company, provided the body is recognised by HMRC. Training courses that develop or maintain skills already used in your role are also allowable, although HMRC often disallows courses that provide wholly new qualifications, such as an MBA.

Entertainment, Gifts And Staff Events

Client entertainment is not an allowable expense for Corporation Tax purposes, no matter how directly it relates to winning new business. Staff entertainment is treated differently: you can claim up to £150 per head, per year, for annual events such as a Christmas party, covering all functions held across the year rather than each one individually. Small, non-cash gifts to staff costing £50 or less can also be given tax-free as a trivial benefit, subject to an annual cap for directors.

Marketing, Advertising And Formation Costs

Costs associated with promoting your business, from one-off advertising campaigns to ongoing PR and marketing services, are allowable provided they're incurred wholly for business purposes. The costs of forming your limited company, including registration fees and associated professional advice, are also fully deductible.

How Consultax Can Help

Identifying every allowable expense while staying firmly within HMRC's rules can be time-consuming, particularly as reliefs such as the mileage rate and home-working allowance continue to change year on year. As experienced limited company accountants, Consultax works closely with limited company directors to review expense claims, structure director remuneration tax-efficiently, and ensure Corporation Tax returns are accurate and fully compliant. The team of Consultax Chartered Accountants combines chartered-level expertise with a practical, personal approach, giving you confidence that you're claiming every allowable expense you're entitled to while remaining fully compliant with HMRC.

Conclusion

Claiming allowable business expenses correctly is one of the most effective ways for a limited company to manage its Corporation Tax liability. The core test remains the same: costs must be incurred wholly and necessarily for business purposes, and every claim needs to be properly evidenced and retained for at least six years. With several key changes taking effect in the 2026/27 tax year, including the higher mileage rate and the end of the flat-rate home-working allowance, it's worth reviewing your expense processes now to ensure your company remains compliant while making the most of the reliefs available. If you're ever unsure whether a cost qualifies, speaking to a qualified accountant before you claim is always the safest approach.