Common allowable expenses
Most small companies share the same core costs, and almost all of them are allowable when they are genuinely for the business. The usual headings include:
- Staff costs such as salaries, employer National Insurance, employer pension contributions and the cost of running payroll.
- Premises or use of home, whether that is rent, business rates and utilities on a unit, or a fair share of home running costs where the company operates from home.
- Equipment and capital allowances, 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 online tools used to run the business.
- Marketing including a website, advertising and design.
- Professional fees such as accountancy, relevant legal advice and insurance.
- Travel for business journeys, including mileage at 45p for the first 10,000 miles then 25p, or actual running costs.
- Training that maintains or updates the skills used in the current trade.
For a fuller list across every heading, see our guide to limited company allowable expenses.
Expenses people often miss
Smaller companies often forget the cheaper, perfectly legitimate claims. Trivial benefits of up to £50 each can be given to staff with no tax charge, as long as they are not cash or a reward for work. The annual staff event exemption allows up to £150 per head on an event such as a Christmas party without creating a taxable benefit. Both are easy wins that are frequently overlooked.
Employer pension contributions are another. The company can pay into the directors' and employees' pensions and claim the cost against profit, which is highly tax efficient. Companies also miss a fair proportion of home running costs where someone works from home, mileage on business journeys taken in a personal car, bank charges and interest on business borrowing, and the cost of relevant insurance such as professional indemnity. Keeping clean records through good bookkeeping is the simplest way to make sure none of these slip through.
Risky or commonly challenged expenses
The costs that cause trouble are usually those with a private element or no business purpose at all. Client entertaining is never allowable, so any spend on hospitality for clients or prospects cannot reduce the company's profit. Everyday clothing is not allowable even if it is only worn at work.
A company car used privately creates a benefit in kind charge on the employee or director and an employer National Insurance cost for the company, so many small companies keep cars personal and claim mileage instead. Charging genuinely personal costs to the company, or claiming the full cost of something with obvious private use such as a home phone or broadband, will be disallowed. Training that prepares someone for a brand new trade, rather than maintaining existing skills, is also commonly challenged.
Records to keep
Keep receipts and invoices for everything the company buys, along with payroll records, mileage logs and a note of how any use of home or business proportion was worked out. Where directors or staff pay for company costs personally and reclaim them, those reclaims need the same supporting paperwork.
A company must keep its records for at least 6 years. Good records throughout the year flow straight into your limited company accounts and corporation tax return, and make it far easier to claim everything you are entitled to. They also mean any question from HMRC can be answered quickly and with confidence.
A worked example
A small company and the 19% effect
Northgate Joinery Ltd has turnover of £120,000. Before claiming its costs it would have a high taxable profit. During the year it pays £40,000 in staff salaries and employer costs, £9,000 in rent and utilities on a small unit, £6,000 of materials and consumables, £4,000 of equipment that qualifies for the Annual Investment Allowance, £2,500 on marketing and software, and a £5,000 employer pension contribution. Those allowable costs of £66,500 reduce the profit charged to corporation tax. On the £4,000 of equipment alone, the 100% allowance saves £760 in tax at the small profits rate of 19%. Every extra £1,000 of genuine allowable cost saves the company £190 in corporation tax, so getting the claims right has a direct effect on the bill.
Common mistakes
The most expensive mistake is treating dividends as a company cost. Dividends are paid from profit after corporation tax, so they never reduce the company's tax bill. Mixing up capital and revenue spending is another. Day to day running costs are deducted in full, while equipment is dealt with through capital allowances, although the Annual Investment Allowance often gives the same full relief in the year of purchase.
Other common errors include putting client entertaining through the company and expecting relief, claiming 100% of a mixed use cost rather than the business share, and forgetting easy wins like trivial benefits and the staff event. Poor records that cannot support a claim are a frequent problem too. The goal is accuracy, claiming everything genuine without overreaching.
What you should do
Run all business income and spending through a dedicated company account, keep every receipt, and review your costs against the categories above so nothing is missed. Make sure equipment is claimed under the right allowance, check that any mixed use cost is split fairly, and use the cheap exemptions such as trivial benefits and the staff event.
If you want to be sure your small company is claiming everything it should and nothing it should not, TaxTune can handle your accounts, payroll and tax in one place. You can start your quote for a clear fixed fee service. For companies of your size, our page for accountants for small limited companies explains how we help.
A practical guide to the costs a small company can claim against corporation tax in 2026/27.