Every legitimate business expense your limited company pays reduces its taxable profit — and therefore its corporation tax bill at 19–25%. Yet many director-owners either miss valid claims or, worse, claim personal costs that HMRC later disallows with interest and penalties. This guide sets out the rule that governs everything — the “wholly and exclusively” test — and works through what you can and can't claim.
Business Expenses Key Rules 2026
- The test: expenses must be 'wholly and exclusively' for the business
- Home working: £6/week flat rate with no evidence, or a proportion of actual costs
- Mileage: 45p/mile first 10,000 miles, 25p thereafter (own car)
- Client entertaining: not tax-deductible; staff events up to £150/head are
- Equipment: often 100% deductible via the Annual Investment Allowance
- Keep records: receipts and invoices for at least six years
The 'wholly and exclusively' test
The core rule is simple to state and easy to trip over: a cost is only allowable if it is incurred wholly and exclusively for the purposes of the trade. If an expense has a mix of business and personal purpose, it usually fails — unless the business part can be clearly identified and separated (for example, an itemised phone bill).
“Duality of purpose” is where most disallowed claims come from: everyday clothing, ordinary commuting, and meals you'd eat anyway all fail because they also serve a personal need.
Common allowable expenses
Typical deductible costs include staff and director salaries and employer NIC, accountancy and legal fees, business insurance, office rent and utilities, software subscriptions, marketing and advertising, business travel and accommodation, professional subscriptions, and bank charges. Stock and raw materials are deductible against the income they generate.
Equipment such as laptops, tools and machinery is usually written off in full in the year of purchase via the Annual Investment Allowance rather than depreciated slowly.
Working from home and travel
If you work from home you can either claim HMRC's flat rate of £6 a week with no paperwork, or a fair proportion of actual household costs (heat, light, broadband) based on rooms used and time. Company-reimbursed business mileage in your own car is 45p per mile for the first 10,000 miles, then 25p.
Business travel — visiting clients, suppliers or temporary workplaces — is allowable, but ordinary commuting to a permanent workplace is not.
Entertaining, gifts and grey areas
Client entertaining is a common trap: you can pay for it through the company, but it is not tax-deductible and any VAT is not reclaimable. Staff entertaining is different — an annual event costing up to £150 per head (including VAT) is an allowable, tax-free benefit for employees.
Trivial benefits up to £50 (gift cards, small gifts) can be provided tax-free within limits. Business gifts to clients are generally disallowed unless they carry a conspicuous advert and cost under £50 per recipient a year.
Expenses directors commonly miss
Frequently overlooked but valid claims include: use-of-home costs, mobile phone in the company's name (fully allowable with no BIK), eye tests and glasses for screen use, professional development and training relevant to the trade, a company mobile, pension contributions the company makes on your behalf, and pre-trading expenses in the seven years before incorporation.
Keep every receipt and record the business purpose. Good bookkeeping is what turns a valid claim into a defensible one — see our statutory accounts guide.
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View company packagesFAQ
What does 'wholly and exclusively' mean for expenses?
It means a cost is only tax-deductible if it is incurred entirely for business purposes. If an expense also serves a personal purpose (duality of purpose), it is usually disallowed unless the business element can be clearly identified and separated, such as an itemised phone bill.
How much can I claim for working from home?
You can claim HMRC's flat rate of £6 a week with no evidence required, or a fair proportion of your actual household running costs (heating, lighting, broadband) based on the rooms and time used for business. The flat rate is simplest for most directors.
Can I claim client entertaining as a business expense?
You can pay for client entertaining through the company, but it is not tax-deductible and the VAT cannot be reclaimed. Staff entertaining is different — an annual event costing up to £150 per head including VAT is an allowable, tax-free benefit.
Is equipment like a laptop fully deductible?
Usually yes. Most equipment (laptops, tools, machinery) qualifies for the Annual Investment Allowance, letting the company deduct 100% of the cost in the year of purchase rather than depreciating it over several years.
What business expenses do directors most often miss?
Common missed claims include use-of-home costs, a mobile phone in the company's name, eye tests and glasses for screen work, relevant training, employer pension contributions, and pre-trading expenses incurred in the seven years before incorporation.