Allowable Corporation Tax deductions

The general test

A cost is deductible from Corporation Tax if it is incurred wholly and exclusively for the purposes of the trade. If a cost has a mixed business and personal element, only the business proportion is deductible.

Common deductible costs

• Salaries, employer NI, and pension contributions
• Premises costs: rent, business rates, utilities
• Office costs: phones, internet, stationery, software subscriptions
• Travel and subsistence on business journeys
• Marketing, advertising, and website costs
• Professional fees: accountants, lawyers, consultants
• Bad debts written off
• Training related to the trade
• Insurance premiums

What is NOT deductible

• Client entertaining (one of the most common errors)
• Depreciation on accounts — replaced by capital allowances for tax
• Fines and penalties imposed by regulators
• Personal expenses of directors or shareholders
• Capital expenditure on fixed assets — claim through capital allowances instead
• Dividends paid to shareholders (these come out of post-tax profit)
• Most political donations

Capital vs revenue

The most common mistake: confusing capital and revenue spending. A repair to a machine is revenue (deductible). Buying a new machine is capital (claim through capital allowances). HMRC scrutinises this line carefully.

Reliefs that reduce CT further

• Capital allowances: AIA up to £1m, full expensing on new plant
• Research and Development (R&D) relief: significant deduction for qualifying R&D activity
• Patent box: 10% effective rate on profits from patented inventions
• Loss relief: carry losses back, forward, or sideways to other group companies
• Charitable donations: deductible if to qualifying charities (not political)

Get advice on the borderline

The grey areas — entertaining vs hospitality, repairs vs improvements, capital vs revenue — are where HMRC enquiries focus. Get an accountant's view on anything material before you classify it.