- Core rule: expenses must be wholly and exclusively for business purposes
- Client entertaining is explicitly disallowed — even meals at client sites
- Staff entertaining (including sole directors) is allowable up to £150 per head per year
- Keep all receipts and records for 6 years from the end of the accounting period
- HMRC can enquire into returns up to 4 years after filing (longer if fraud suspected)
The 'wholly and exclusively' rule
For an expense to reduce your company's taxable profits, it must be incurred wholly and exclusively for the purposes of the trade (ITTOIA 2005 / CTA 2009). Dual-purpose costs — those with a personal as well as business element — are generally disallowed in full, unless the two purposes can be cleanly separated and only the business portion is claimed.
The dual-purpose trap: A suit bought for client meetings looks business-related, but it is wearable outside work — so it has a personal purpose too. HMRC's position (confirmed by case law) is that it is not deductible. Contrast this with a branded uniform or safety equipment, which has no personal use and is clearly allowable.
Always allowable expenses
| Expense category | Notes |
|---|---|
| Director salary and employer NI | Fully deductible — key reason salary is tax-efficient vs dividends |
| Employer pension contributions | Deductible and no employer NI — the most CT-efficient extraction method |
| Business travel and accommodation | Client visits, conferences — not ordinary commuting to a regular workplace |
| Mileage reimbursements | At HMRC approved rates (45p/25p) — no BIK, fully deductible |
| Professional indemnity and business insurance | Fully deductible — essential for most client-facing roles |
| Accountancy and legal fees | Preparation of accounts and CT returns — fully allowable |
| Professional subscriptions | Industry body memberships on HMRC's approved list |
| Software subscriptions | Microsoft 365, Adobe, project management tools, accounting software |
| Computer equipment | Via Annual Investment Allowance — 100% deduction in year of purchase |
| Marketing and advertising | Website costs, LinkedIn ads, business cards — all allowable |
| Bank charges and interest | Business account charges and loan interest related to the trade |
| Training (existing trade) | Courses updating current skills — see below for new trade caveat |
Partially allowable expenses
| Expense | Allowable portion | Method |
|---|---|---|
| Home office | £6/week flat rate or apportioned actual costs | See home office guide |
| Mobile phone (personal contract) | Business use proportion only | Estimate % and apply consistently |
| Broadband (home) | Business proportion (if company pays) | Estimate based on usage |
| Company car | Depends on CO2 emissions and personal use | Complex — take advice |
| Dual-purpose travel | Business leg only if separable | Document the business purpose |
Mobile phone shortcut: If the company takes out the mobile phone contract directly (contract in the company's name), the entire cost is deductible and there is no benefit-in-kind — even if you use the phone personally. This is one of the cleanest ways to handle phone costs.
Explicitly disallowed expenses
| Expense | Why disallowed |
|---|---|
| Client entertainment (meals, events, hospitality) | Specifically excluded by statute — no exceptions |
| Fines and penalties | Not for business purposes in law |
| Dividends paid to shareholders | Not a company expense — paid from post-tax profits |
| Personal expenditure put through the company | Will be reclassified — potential BIK or DLA issues |
| Capital items (depreciation) | Depreciation is added back; capital allowances claimed instead |
| Clothing (ordinary) | Dual-purpose — does not qualify even if only worn for work |
Staff entertaining vs client entertaining
The distinction is important. Client entertaining is never deductible. Staff entertaining — including the director themselves — can be deductible up to £150 per head per event/year. But the £150 is an exemption ceiling, not an allowance: if you spend £160 per head, the entire amount becomes a taxable benefit, not just the £10 excess.
Worked example: Christmas party
| Scenario | Tax treatment |
|---|---|
| Company (1 director) spends £140 on annual dinner | Fully deductible, no BIK — within the £150 exemption |
| Company (1 director) spends £200 on annual dinner | £200 is a taxable BIK — reported on P11D. Company still deducts it |
| Company takes client to dinner, £80 | Not deductible — client entertainment, no exceptions |
Training: existing trade vs new trade
Training that updates or improves skills used in your current trade is allowable. Training to acquire skills for an entirely new trade — when no business in that new area currently exists — is disallowable capital expenditure. Example: an IT consultant paying for a coding bootcamp (allowable) vs paying for a pilot's licence when the company has no aviation activity (not allowable).
Record keeping
Keep all invoices, receipts, and supporting documentation for 6 years from the end of the accounting period they relate to. For items that span periods (e.g., annual subscriptions), retain until 6 years after the last relevant period. HMRC can open an enquiry into a CT return up to 4 years after the filing date — or 6 years if careless, or 20 years if fraudulent.
HMRC enquiry risk: Personal costs flowing through a company account are a common enquiry trigger. HMRC has data-matching tools and regularly cross-references accounts against industry norms. Unusual expense ratios — especially entertainment, travel, or equipment — attract scrutiny. Document the business purpose of every material claim at the time it is made, not years later.
Use the calculator
Frequently asked questions
Can my company pay for my training?
Is client entertainment ever deductible?
Can I deduct my accountancy fees?
Can the company pay my home broadband?
What about pre-trading expenses?
Important: This guide is for general information only and does not constitute tax or legal advice. Tax rules change — always verify current rates and thresholds with HMRC or a qualified accountant before making decisions.