Allowable Expenses for Corporation Tax

The 'wholly and exclusively' rule

To be deductible for corporation tax, an expense must be incurred 'wholly and exclusively for the purposes of the trade'. Dual-purpose expenses (partly business, partly personal) are generally not deductible — though an identifiable business proportion may be allowed.

Always allowable

• Director salary and employer NI contributions
• Employer pension contributions
• Business travel (excluding ordinary commuting)
• Business phone and broadband (business portion)
• Professional subscriptions and memberships
• Professional indemnity insurance
• Accountancy and legal fees
• Office equipment and software
• Training directly related to current business activities
• Marketing and advertising costs
• Bank charges and interest

Partially allowable

• Home office (flat rate £6/week or apportioned actual costs)
• Mobile phone (business proportion if also used personally)
• Car costs (if used for business — complex rules apply)

Not allowable

• Client entertainment (meals, events) — specifically disallowed
• Fines and penalties
• Dividends paid to shareholders
• Personal expenditure disguised as business costs

Record keeping

Keep all receipts for 6 years. HMRC can enquire into company tax returns up to 4 years after filing (or longer if fraud is suspected). A clear business purpose documented at the time of expenditure is your best defence.