Key takeaways
- A limited company can deduct a cost from its profits only if it is incurred wholly and exclusively for the trade, under section 54 of the Corporation Tax Act 2009.
- Client and customer entertainment is not allowable for Corporation Tax, but staff entertainment usually is.
- Business gifts are deductible only if they carry a conspicuous advertisement, cost no more than £50 per recipient in the accounting period, and are not food, drink, tobacco or vouchers.
- Equipment is claimed through capital allowances; the Annual Investment Allowance is £1 million, but cars do not qualify for it.
- New, unused zero-emission cars get a 100% first-year allowance; other cars get 14% (main rate, 18% before April 2026) or 6% a year.
- A company can pay a director or employee up to 55p a mile tax-free for the first 10,000 business miles in their own car from 6 April 2026, then 25p.
- An annual staff party is tax-free for employees if it is open to all staff and costs £150 or less per head.
A limited company can deduct any cost it incurs wholly and exclusively for its trade from its profits before Corporation Tax. That covers most running costs, such as salaries, rent, software, insurance and professional fees. Some costs, such as client entertaining and fines, are blocked by law, and equipment is claimed through capital allowances instead.
What makes an expense allowable?
An expense is allowable if the company incurs it wholly and exclusively for the purposes of its trade. The rule is in section 54 of the Corporation Tax Act 2009. HMRC’s Business Income Manual, at BIM37007 (updated 4 August 2026), says that if you identify a non-trade purpose, the expense is not allowable.
A mixed-purpose cost usually fails, but HMRC accepts that a definite, identifiable business part of a cost can be deducted.
Each £1 of allowable expense saves 19p of Corporation Tax at the small profits rate (profits of £50,000 or less) and 25p at the main rate. Try our Corporation Tax calculator.
The list of allowable expenses
Most companies can deduct these costs if they are for the business. Some have special rules, covered below.
Staff and directors
- salaries, wages and bonuses, including directors’ salaries
- employer’s National Insurance
- employer pension contributions
- staff training related to the business
- staff entertainment, such as a Christmas party
- recruitment costs
Premises and running costs
- rent, business rates and service charges
- light, heat, power and water for business premises
- repairs and maintenance
- cleaning and waste collection
Office and admin
- phone, broadband and mobile contracts in the company’s name
- software subscriptions and accounting software
- stationery, postage and printing
- bank charges and interest on business loans
Professional and financial
- accountancy, bookkeeping and payroll fees
- legal fees for trading matters
- business insurance
- trade and professional subscriptions
Sales and marketing
- advertising, websites and online marketing
- business gifts that meet HMRC’s conditions
Travel
- business travel, hotels and subsistence on business trips
- mileage payments to staff using their own vehicles
Costs that are not allowable
These are the main costs a company cannot deduct for Corporation Tax.
| Cost | Allowable? | Why |
|---|---|---|
| Client entertaining | No | Blocked by s1298 CTA 2009 |
| Fines and penalties | No | Not incurred for the trade |
| Personal costs of directors | No | Not wholly for the trade |
| Dividends | No | A payout of profit, not a cost |
| Corporation Tax itself | No | Tax on profit |
| Equipment and vehicles | Not as an expense | Claim capital allowances |
HMRC’s BIM45000 says spending on business entertainment or gifts is not allowable, subject to exceptions. See our guide to client entertainment tax.
Entertainment and gifts
Staff entertainment is usually allowable; customer entertainment is not. HMRC’s BIM45033 says staff entertaining is allowable if it is for the trade and “not merely incidental” to entertaining customers.
For employees, GOV.UK says an annual party is tax-free if it is open to all employees, is annual, and costs £150 or less per person. See the staff party tax exemption.
Business gifts are allowable only if all of these apply (BIM45070):
- the gift carries a conspicuous advertisement for the company
- it is not food, drink, tobacco or a voucher exchangeable for goods
- gifts to the same recipient cost no more than £50 in the accounting period
Equipment and cars: capital allowances
Equipment is not deducted as a running cost; the company claims capital allowances. GOV.UK says the Annual Investment Allowance is £1 million and covers most plant and machinery, such as computers, tools and vans. Cars are excluded from it.
Company cars bought from April 2021 get these allowances, according to GOV.UK:
| Car | Allowance |
|---|---|
| New, unused, zero emission | 100% first-year allowance |
| 50g/km CO2 or less, or second-hand electric | 14% a year (18% before April 2026) |
| Over 50g/km CO2 | 6% a year |
Read more in our capital allowances guide.
Mileage and travel
A company can pay staff, including directors, a tax-free mileage rate for business journeys in their own vehicles, and deduct it. GOV.UK’s approved rates are:
| Vehicle | First 10,000 miles | Over 10,000 miles |
|---|---|---|
| Car or van | 55p (45p before 6 April 2026) | 25p |
| Motorcycle | 24p | 24p |
| Bicycle | 20p | 20p |
Ordinary commuting between home and a permanent workplace is not business travel. Work out a claim with our mileage calculator.
Small staff benefits
A company can give staff small tax-free treats under the trivial benefits rule. GOV.UK says the benefit must cost £50 or less, not be cash or a cash voucher, not be a reward for work, and not be in the employee’s contract. Directors of close companies are capped at £300 a year.
What directors should do
- Pay business costs from the company account where you can.
- Keep receipts and invoices for 6 years from the end of the financial year.
- Record the business reason for any cost that could look personal.
- Separate capital items from running costs so they go through capital allowances.
- Ask your accountant about anything with a mixed purpose before you claim.
Frequently asked questions
What is the test for a limited company allowable expense?
The cost must be incurred wholly and exclusively for the company’s trade, under section 54 of the Corporation Tax Act 2009.
Can a limited company claim client entertainment?
No. Client and customer entertainment is not allowable for Corporation Tax. Staff entertainment usually is.
Can my company pay me mileage for using my own car?
Yes. From 6 April 2026 the company can pay up to 55p a mile tax-free for the first 10,000 business miles and 25p after that.
Can a limited company claim the cost of a laptop?
Yes, through capital allowances. Most equipment qualifies for the Annual Investment Allowance, which is £1 million.
Are business gifts tax deductible?
Only if each gift carries a conspicuous advertisement, is not food, drink, tobacco or a voucher, and gifts to one person cost no more than £50 in the accounting period.
Is a company car an allowable expense?
The car is claimed through capital allowances, not as an expense. New zero-emission cars get a 100% first-year allowance; others get 14% or 6% a year.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.
- BIM37007: wholly and exclusively, overview (HMRC Business Income Manual)
- BIM45000: business entertainment and gifts (HMRC Business Income Manual)
- Annual Investment Allowance (GOV.UK)
- Capital allowances: business cars (GOV.UK)
- Business travel and mileage: rules for tax (GOV.UK)
- Expenses and benefits: trivial benefits (GOV.UK)