If you are an employer acting as the director of your own limited company, there are certain expenses you are allowed to claim. However, understanding and reporting your expenses and benefits to HMRC can be complicated, so it is highly advisable to seek assistance from a professional accountant.
What kinds of expenses are allowed?
Genuine business expenses are expenses that have been incurred wholly and exclusively while running your business. For example, as limited company, you cannot claim for expenses that you use for both business and personal use. You also cannot claim for expenses that were not incurred as part of running your company.
It’s important to keep receipts and invoices as proof of any business expenses you are hoping to claim. An accountant can help you organise these and offer advice on which expenses are legitimate.
Examples of limited company expenses
The expenses that come with running a limited company are often different to those incurred by a sole trader. While a sole trader will often use their personal residence as a workplace, a limited company may have office space costs and transport costs to consider.
If your limited company employs workers, then their salaries, national insurance contributions and approved pension contributions are an additional expense. Other regular expenses include business stationery, printing costs, insurance, business broadband, computer equipment and business advertising.
There are also some irregular business expenses that are just as legitimate. The cost of professional development training courses can be claimed as expenses if the skills are relevant to your company. As well as this, business gifts (up to a certain amount per individual, check current allowances with HMRC) and other incidental expenses including office Christmas parties can be claimed.
These are just a few examples of the many limited company expenses that can be claimed, and it is also possible to claim for personal expenses that were incurred for business purposes for up to seven years before your company formation.
It is important to note that the company formation fee you must pay when forming your limited company is treated as a one-off cost, so you cannot reclaim it against Corporation Tax. However, on-going company fees, such as your Annual Return Fee can be claimed as expenses. Check with your accountant to ensure you are making the correct claims.
Understanding pre-incorporation VAT expenses
If you incur business expenses prior to your company formation, you can also reclaim VAT. For example, if you have paid for goods and services directly related to setting up your company, you can reclaim the VAT you paid for services within six months – while you have up to four years to reclaim VAT you paid on goods.
Of course, just like claiming business expenses, reclaiming VAT is also a complex area, and it is best to have professional advice and assistance from an accountant. It is necessary to keep accurate records of your expenses before you formed your company, and make sure you ask for VAT receipts on all business expenditures as well.