Limited Company Expenses: What You Can and Cannot Claim in 2026-27

Bottom line: An expense is deductible from corporation tax if it's incurred "wholly and exclusively for the purposes of the trade." Technology, travel, professional fees, training, and home office costs almost always qualify. Client entertainment and personal clothing almost never do. Getting this right saves 19–25% on every pound you correctly classify.

The golden rule behind every allowable expense

HMRC's test for whether an expense is corporation-tax deductible is this: was it incurred "wholly and exclusively for the purposes of the trade"? If yes, it's allowable. If it had a personal element — or if the business purpose isn't clear — it may not be.

The word "exclusively" sounds strict, but in practice HMRC accepts that many costs have incidental personal benefit without that making them non-deductible. A broadband connection used mainly for work with occasional personal browsing is still allowable. The test is about the primary purpose, not purity of use. What HMRC specifically targets are costs where the personal benefit is the primary driver — not an incidental side effect.

Technology and equipment ✓

Computers, monitors, keyboards, webcams, microphones, headsets, and specialist equipment used for business are fully allowable. So are software subscriptions (Microsoft 365, Adobe Creative Cloud, development tools, security software), cloud services (AWS, Azure, Google Cloud), and hardware up to any value claimed under the Annual Investment Allowance.

AIA lets you deduct the full cost of qualifying plant and machinery in the year of purchase, rather than spreading it over several years. The annual limit is £1 million — enough for virtually any solo director's equipment spend.

Communications ✓

A mobile phone contract in the company's name is fully deductible, even with some personal use, because HMRC accepts that a single contract is an indivisible business cost. Broadband costs are treated similarly when the connection is essential to the business — which for most contractors it clearly is. If you have separate personal and business broadband connections, the business one is deductible in full; the personal one is not.

Home office ✓

Either £6/week flat rate (no receipts, works from the first month) or apportioned actual home costs (utility bills, mortgage interest, council tax). The apportioned method typically produces 5–10 times more than the flat rate. See the Home Office guide for full worked examples, the CGT considerations, and how to claim correctly.

Business travel ✓

Travel to temporary workplaces (client sites you don't attend regularly) is deductible. Your home to office commute is not — even if the "office" is your client's site. Mileage at HMRC approved rates: 45p per mile for the first 10,000 miles, 25p after. Rail, bus, taxi, and parking for genuine business trips all qualify. Subsistence (meals and drinks when away from base on business) is allowable at HMRC's benchmark rates.

Golden nugget: temporary workplace vs. regular attendance

HMRC defines a "temporary workplace" as one you attend for less than 40% of your working time and for a period expected to last less than 24 months. If you're contracting at the same client site for over two years and it's your only workplace, travel there stops being deductible. Many contractors hit this and don't realise it. Review long-term contracts for the 24-month rule — where possible, have a genuine second workplace (even occasional work from home) to break the pattern.

Professional fees and insurance ✓

Accountancy fees, legal fees for business matters (not personal legal disputes), professional indemnity insurance, public liability insurance, and professional membership subscriptions (CIPD, BCS, RICS, Law Society, relevant trade bodies) are all allowable. Annual business bank account fees are also deductible.

Training ✓ (with an important caveat)

Training that maintains or improves skills in your current trade is allowable. Conferences, online courses, technical books, journals, and industry events relevant to your business all qualify. The key restriction: training that helps you enter a new trade or profession is not allowable — the training must be connected to what you already do, not what you're thinking of doing next.

Client entertainment ✗

This is the most common director expense error. Meals, drinks, sporting events, theatre tickets, and hospitality for clients are specifically disallowed by HMRC, regardless of whether genuine business discussion took place. Even a business lunch with a major client doesn't qualify. The rule has no exceptions for directors — it's an absolute disallowance.

Staff entertaining ✓ (up to £150 per head per year)

Annual staff events — Christmas parties, team away days, summer events — are allowable up to £150 per head per year for all attendees (staff and their guests). The £150 is a threshold, not an allowance: exceed it and the entire amount becomes a taxable benefit-in-kind for each person — not just the excess. For a sole director, this means up to £150 for your own annual event, including any guests who attend.

Personal clothing ✗

A suit, dress, or business wardrobe suitable for everyday wear is not deductible — even if you only wear it for client meetings. HMRC's position is clear: if you could wear it outside work, it's personal. Exceptions are limited to protective clothing, uniforms with a company logo, and specific costumes required for a role that couldn't be worn in everyday life.

Fines and penalties ✗

Parking fines, HMRC late filing penalties, and HMRC surcharges are not deductible. HMRC's logic: allowing the deduction would effectively mean HMRC is subsidising its own penalty regime. Director's personal fines should never be paid by the company — this creates a benefit-in-kind and additional tax liability.

Golden nugget: directors' loan accounts are a hidden risk

Any money taken from the company that isn't categorised as salary, dividend, or expense reimbursement sits on the director's loan account. If the loan account is overdrawn at the company year-end, the company owes a Section 455 tax charge of 33.75% on the outstanding balance until it's repaid. Many directors take informal "drawings" throughout the year without categorising them — then face an unexpected tax bill and interest. Keep a running director's loan account and ensure every withdrawal is properly classified at the time it happens.