What Your Limited Company Can Actually Claim: Business Expenses 2026/27

Most limited company directors know the basics — you can claim your accountant's fees, your laptop, your business travel. But HMRC's rules on what constitutes a genuine business expense are both more permissive and more specific than most people realise. Directors who understand them in detail consistently pay less corporation tax than those who guess. Here's a complete breakdown for 2026/27 — including what changed this tax year and how to structure claims so they hold up under scrutiny.

The "wholly and exclusively" rule — the test that governs everything

Every deductible business expense must be incurred "wholly and exclusively for the purposes of the trade" (Section 54, Corporation Tax Act 2009). This is the single test HMRC applies to every expense you claim, and understanding it removes the uncertainty that leads most directors to under-claim.

Two practical implications follow. First, personal expenditure is never deductible regardless of how you frame it. Second, mixed-use expenses — partly business, partly personal — can only be claimed on the business proportion, but that portion is claimable. A useful frame: would the company still incur this cost if you, personally, weren't involved? If yes, it's likely allowable. If the cost exists primarily because of your personal circumstances, it likely isn't.

Revenue vs capital: why the distinction matters less than it used to

Expenses split into two categories. Revenue expenses — day-to-day running costs — reduce your profit directly in the year incurred. Capital expenses — long-term assets — are handled through capital allowances rather than expensed immediately.

In practice, this distinction matters less than it used to. The Annual Investment Allowance covers up to £1 million of qualifying plant and machinery per year, and full expensing (permanent from April 2023) allows a 100% first-year deduction on new qualifying main-rate assets. For most single-director businesses, virtually all equipment purchases are fully deductible in the year of purchase.

What changed in 2026/27

Employer NI: the cost of paying yourself has shifted

From April 2025, employer National Insurance increased to 15% (from 13.8%) and the secondary threshold dropped to £5,000 (from £9,100). On the face of it, the band of salary you can pay before employer NI kicks in is much smaller.

The offsetting factor matters: Employment Allowance rose to £10,500. For most single-director companies, this fully eliminates employer NI liability — meaning the threshold change has no net cash impact. The optimal director salary for 2026/27 remains around £12,570 (the personal allowance), with retained profit extracted as dividends. Use the Salary vs Dividend Calculator to model your specific position.

Dividend allowance still at £500

The tax-free dividend allowance remains at £500 — down from £2,000 in 2022/23. This ongoing reduction makes pre-extraction strategies, particularly employer pension contributions, relatively more valuable each year as the dividend route becomes less efficient.

Income tax thresholds: frozen until 2028

The personal allowance (£12,570) and higher-rate threshold (£50,270) remain frozen until 2028. Fiscal drag is gradually pulling more directors into higher-rate territory as earnings grow — reinforcing the case for maximising allowable deductions and pension contributions before profit leaves the company.

What your limited company can claim: category by category

Payroll and employment costs

• Director salary — you are an employee of your own company
• Employer NI on that salary
• Employer pension contributions — fully deductible, no benefit-in-kind, no employer NI. The single most tax-efficient extraction available to most directors.
• Salaries of any other employees

On pensions specifically: employer contributions save corporation tax (19–25%), employer NI (15%), and carry no personal tax consequence for you as the recipient. The effective tax saving compared with taking the same amount as salary is between 38% and 47%. The annual allowance is £60,000 — and employer contributions do not count against the individual's earnings-based cap in the same way employee contributions do.

Home office

Two routes are available for directors who work from home:

• Flat rate: £6 per week (£312/year). No receipts required, no capital gains tax risk. The right choice for most directors.
• Apportioned actual costs: A defensible proportion of rent, utilities, broadband, and council tax based on the rooms and time used for business. Potentially larger — but creates a CGT exposure on your home if you designate a room exclusively for business use, and requires clear methodology if HMRC questions it.

One common mistake: mortgage interest cannot be included in a home office apportionment claim. Only running costs qualify.

Travel and subsistence

• Business mileage: 45p per mile (first 10,000 miles), 25p thereafter — unchanged for 2026/27. Your company reimburses you at these rates tax-free when you use your personal vehicle for genuine business journeys.
• Rail, tube, and taxi fares for business travel
• Hotel accommodation and meals on genuine business trips away from your normal work base

Commuting is not deductible. Travel between your home and a regular fixed workplace is personal expenditure regardless of company ownership. If your home is your only place of business, travel to client sites is allowable. If you have a commercial office, travel to that office is not.

Equipment and technology

• Computers, laptops, monitors, tablets — fully expensed via Annual Investment Allowance in the year of purchase
• Business software subscriptions: accounting software, CRM, project management, design tools, Microsoft 365
• Mobile phone: One mobile phone per employee is fully deductible with no benefit-in-kind tax — even where there is personal use. HMRC explicitly exempts this under Section 319 ITEPA 2003. This is one of the most consistently under-claimed reliefs available to directors.
• Business broadband or the business proportion of a shared connection

Professional services

• Accountancy, bookkeeping, and payroll fees
• Legal fees for business matters — contracts, IP, HMRC enquiries, employment disputes
• Professional indemnity, public liability, and directors' and officers' insurance premiums
• Subscriptions to professional bodies and trade associations relevant to your trade
• Business bank charges and payment processing fees (Stripe, PayPal, bank transfers)

Marketing and training

• Website development, hosting, and domain registration
• Digital advertising across all platforms
• Branding, photography, and design work
• Training courses that maintain or update existing skills relevant to your trade
• Professional books, journals, and relevant online learning platforms

On training: the "existing trade" condition matters. A developer paying for an advanced coding course is on solid ground. The same developer paying for an entirely unrelated qualification faces a harder argument. In practice, professional development within your field is defensible.

What HMRC will challenge: the common mistakes

Three efficiency strategies worth acting on now

1. Employer pension contributions before year-end

If your accounting year-end is approaching and you have surplus profit, an employer pension contribution made in that period reduces your corporation tax bill for that year — not the next one. Timing matters. A contribution of £10,000 before year-end saves £1,900–£2,500 in corporation tax depending on your rate, with no other cost to the business or yourself.

2. Keep a mileage log — always, from the start

Mileage claims are among the most frequently challenged by HMRC precisely because they are easy to reconstruct retrospectively. A contemporaneous log — date, purpose, start and end points, mileage — is the only reliable defence. Most accounting apps include mileage tracking. Use it every time you drive on business. A missing log can invalidate months of legitimate claims.

3. Use the staff entertainment exemption

The £150/head annual staff entertainment exemption applies to all employees — including you as the director. An annual event (Christmas dinner, team day) costing up to £150 per head, inclusive of travel and accommodation, is fully deductible and carries no benefit-in-kind charge. If you have a spouse or partner employed by the company, the exemption applies to them too. This is one of the few genuine entertainment deductions available to a limited company and frequently goes unclaimed.