Written by the TaxTune Editorial Team·Reviewed by our qualified accountants·Updated June 2026

Common allowable expenses

Most of a director company's costs fall into a handful of familiar headings. The biggest, and the most tax efficient, is usually the way you pay yourself. A salary you take as an employee of your own company is an allowable cost for the company, which reduces the profit charged to corporation tax. Employer pension contributions paid by the company into your pension are also deductible, provided they are commercially reasonable. Dividends are different. They are paid out of profit after corporation tax, so they are not a company expense and never reduce the company's tax bill. If you are unsure how to split your income, our guide on how directors pay themselves walks through salary, dividends and pension together.

The other everyday allowable costs for a typical director company include:

  • Use of home where you work from home, claimed either as a fair share of your household running costs or as a simple monthly amount.
  • Equipment such as a laptop, monitor, phone and office furniture, with the Annual Investment Allowance giving 100% relief on up to £1,000,000 of qualifying spend, and full expensing giving 100% first year relief on qualifying new plant and machinery for companies.
  • Software and subscriptions used for the business, from accounting software and design tools to industry memberships.
  • Business travel and subsistence when you are away from your normal workplace, including train fares, parking, reasonable meals and overnight accommodation.
  • Mobile and broadband taken out in the company name, which can be provided to you without a benefit in kind charge on the phone.
  • Professional fees such as accountancy, certain legal costs and relevant insurance.

For the full picture across every category, see our detailed page on limited company allowable expenses.

Expenses people often miss

Directors regularly leave money on the table by forgetting a few perfectly legitimate claims. Trivial benefits are one of the most overlooked. Your company can give you small benefits costing up to £50 each, such as a gift, with no tax charge, as long as the benefit is not cash or a reward for work and you do not pass certain limits as a director. The annual staff event exemption lets the company spend up to £150 per head on an event such as a Christmas meal without creating a taxable benefit, and you count as staff.

Employer pension contributions are frequently underused. Because the company can contribute directly to your pension and claim the cost against profit, this is often a more tax efficient way to extract value than taking extra dividends. Many directors also forget to claim business mileage in their own car at 45p per mile for the first 10,000 miles in the tax year and 25p after that. Pre trading costs in the period before you started the company, professional subscriptions to approved bodies, and a fair proportion of home costs are all commonly missed too.

Risky or commonly challenged expenses

Some costs look like business expenses but do not pass the wholly and exclusively test, and these are where HMRC focuses. Client entertaining is never allowable for tax, no matter how clearly it helped win work, so meals and hospitality for clients and prospects cannot reduce your company's profit. Everyday clothing is not allowable either, even if you only wear it for work, because it also keeps you warm and decent.

The company car is the classic trap. If the company owns a car that you use privately, that private use creates a benefit in kind charge on you personally and an employer National Insurance cost for the company. For many owner managed companies the figures do not stack up, which is why a large number of directors keep the car in their own name and simply claim business mileage instead. Drawing money from the company for personal spending and labelling it as an expense, or charging genuinely private costs to the company, will be disallowed and can create further tax charges. If in doubt, ask before you claim.

Records to keep

Good records are what turn a claim into a defensible one. Keep receipts and invoices for everything the company pays for, and make sure expenses you pay personally and reclaim from the company are supported in the same way. For mileage, keep a log of the date, journey, business reason and miles. For use of home, keep a note of how you worked out the figure.

Your company must keep its records for at least 6 years. Sound bookkeeping through the year makes this painless and feeds straight into your limited company accounts and corporation tax return. The cleaner your records, the easier it is to claim everything you are entitled to and to answer any question from HMRC.

A worked example

Worked example

A director cutting taxable profit

Priya runs a consultancy through her limited company. Before director costs the company has £60,000 of profit. She takes a salary of £12,570, which is an allowable cost. She claims £6,000 of equipment, software and travel, and a fair use of home figure of £312 for the year. She then has the company pay a £15,000 employer pension contribution. Salary plus expenses plus the pension contribution total £33,882, leaving taxable profit of £26,118. At the small profits rate of 19% the corporation tax is around £4,962, far less than the roughly £11,400 the company would have paid on £60,000. The pension contribution alone saved about £2,850 in corporation tax while building Priya's retirement fund.

Common mistakes

The errors we see most often are simple to avoid. Treating dividends as a company expense is the biggest, because dividends come out of post tax profit and never reduce corporation tax. Putting client entertaining or everyday clothing through the company and expecting tax relief is another, as neither is allowable.

Other frequent mistakes include claiming 100% of a phone, car or home cost when there is clear private use, forgetting to keep receipts so the claim cannot be supported, and rushing into a company car without checking the benefit in kind cost. Some directors also miss easy wins such as trivial benefits, the £150 staff event and employer pension contributions. The aim is to claim everything you are genuinely entitled to, no more and no less.

What you should do

Start by separating business and personal spending, ideally with a dedicated company bank account, so it is obvious what belongs to the company. Keep every receipt, log your business mileage, and review how you pay yourself so salary, dividends and pension are working together. Before taking on a company car, run the benefit in kind numbers against simple mileage claims.

If you would like a second pair of eyes on what your company can claim, TaxTune can review your position and make sure nothing is missed. You can start your quote for a fixed fee service that covers your accounts, tax and ongoing advice.

In short

A clear guide to what a director can legitimately put through a limited company in 2026/27.

Frequently asked questions

Can a director claim a salary as a company expense?
Yes. A salary paid to you as an employee and director of your own company is an allowable cost that reduces the profit charged to corporation tax. Dividends are different because they are paid from profit after corporation tax and are not a company expense.
Are employer pension contributions tax deductible for the company?
Yes. Pension contributions the company pays directly into your pension are deductible against profit, provided they are commercially reasonable. This often makes pension a more tax efficient way to take value than extra dividends, because dividends do not reduce the company's tax bill.
Should I put a car through my limited company?
Often not. If the company owns a car you use privately, the private use creates a benefit in kind charge on you and an employer National Insurance cost for the company. Many owner managed companies keep the car personal and claim 45p per mile for the first 10,000 business miles, then 25p, instead.
Can I claim for working from home?
Yes. You can claim use of home either as a fair share of your household running costs or as a simple monthly amount. Keep a note of how you arrived at the figure so the claim is supported if HMRC asks.
Is client entertaining ever allowable?
No. Client entertaining is never allowable for tax, so meals and hospitality for clients or prospects cannot reduce your company's profit. By contrast, an annual staff event up to £150 per head can be provided to staff, including you, without a tax charge if the conditions are met.
How long must a limited company keep its records?
A company must keep its accounting records for at least 6 years. Keeping receipts, invoices, a mileage log and a note of how use of home was calculated makes it straightforward to support every claim.