One of the easiest ways to reduce your corporation tax liability is by claiming allowable business expenses. These are costs that your company incurs wholly and exclusively for the purpose of running your business.
Understanding what counts as an allowable expense can save you money and reduce your taxable profit—legally.
Common Allowable Expenses
Here are some examples of expenses that most businesses can claim:
• Staff Costs: Salaries, bonuses, pensions, and benefits for employees.
Example: Paying an employee £30,000 a year reduces your taxable profit by the same amount.*
• Office Costs: Rent, utilities, cleaning, and office supplies.
Example: Spending £5,000 on office utilities reduces taxable profit by £5,000.*
• Business Travel: Mileage, train fares, and accommodation for business trips.
Example: A £500 business trip to meet a client reduces taxable profit by £500.*
• Professional Fees: Accountants, solicitors, and consultants related to business operations.
• Marketing & Advertising: Website costs, advertising campaigns, and promotional materials.
Tips for Claiming Allowable Expenses
1. Keep receipts and records: HMRC requires evidence of expenses if they are ever queried.
2. Ensure the expense is “wholly and exclusively” for business: If it’s partly personal, only claim the business portion.
Example: Using your personal mobile partly for business—only the business portion of the bill is allowable.*
3. Stay up-to-date with HMRC guidance: Tax rules can change, so make sure you’re claiming correctly.
How Allowable Expenses Reduce Tax
Claiming allowable expenses reduces your taxable profit, which in turn reduces the corporation tax your company pays.
Mini example:
• Profit before expenses: £50,000
• Allowable expenses: £10,000 (office costs + travel)
• Taxable profit: £40,000
• Corporation tax at 25%: £10,000 instead of £12,500
Takeaway:
Allowable expenses are a powerful tool to reduce corporation tax legally. By tracking costs accurately and ensuring they are business-related, you can lower your taxable profit and improve your company’s cash flow. In our next blog, we'll cover disallowable expenses.
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