Allowable deductions for Corporation Tax
What expenses and reliefs reduce your company's Corporation Tax bill, including capital allowances.
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Allowable Corporation Tax deductions
Most business costs incurred wholly and exclusively for the trade are deductible against Corporation Tax. Here are the main categories and the catches.
Capital allowances basics
Capital allowances let you deduct the cost of business assets, equipment, machinery, fixtures, against Corporation Tax over time.
What can a limited company deduct?
Costs incurred wholly and exclusively for the trade: salaries and employer pension contributions, rent, software, professional fees, travel, marketing, stock, and the running costs of doing what the company does. Deductions reduce the profit Corporation Tax is charged on — so a legitimate cost missed is tax paid on money you never kept.
Capital spending — equipment, vehicles, fit-outs — is deducted through capital allowances rather than as a straight expense, and generous first-year reliefs frequently make the timing of a purchase a planning decision worth taking before year end, not after.
The costs directors get wrong
Client entertaining is not deductible — one of the few costs that is simply blocked, however commercial. Staff entertaining has a modest annual exemption per head. Business gifts are mostly blocked with narrow exceptions. Fines and penalties are never deductible. And personal costs run through the company do not become business costs by virtue of the account they left.
The company-versus-personal boundary is the one HMRC tests hardest, because it is where the incentives point. Clean coding through the year beats a debate at year end.
Home working, phones, and mixed use
A director working from home should not treat personal household costs as automatic company deductions. The tax treatment depends on the actual arrangement: whether the company provides or reimburses a work expense, whether the homeworking conditions are met, and whether any private benefit remains. If the conditions for an exemption are not met, PAYE, National Insurance or benefits reporting can apply.
Keep the arrangement, invoices and business purpose clear before the company pays or reimburses a cost. Equipment and services supplied for the business can have their own rules, while mixed personal use needs careful review. A rent or licence arrangement between a director and company also has consequences for both parties and should be agreed only with specific advice.
Timing deductions around year end
Costs are deducted in the period they are incurred, which makes the weeks before year end the planning window: bringing forward committed spending, paying employer pension contributions (deductible when paid, not accrued), and settling bonuses within nine months of year end so they land in the year they were provided for.
This is exactly the conversation our Annual Compliance Review has with every company client before the year closes — while the options are still open, with the monthly numbers already reconciled.
Frequently asked questions
Can my company pay for my lunch?
Ordinary meals are personal, even on work days. The exceptions are travel-related subsistence on qualifying business trips and staff entertaining within the annual exemption. Client meals are entertaining — payable by the company, but not deductible for Corporation Tax.
Is my accountant's fee deductible?
Fees for the company's accounts, tax, payroll, and advice are deductible company costs. Fees for a director's personal tax return are personal — payable personally, or a taxable benefit if the company pays them.
Are pension contributions really that efficient?
Employer contributions are usually deductible for the company, free of NI, and not taxed on the director on the way in — within the annual allowance rules. They are routinely the most efficient extraction route available to an owner-director; the constraint is that the money is a pension, not cash.
Can I claim for equipment bought before incorporation?
Assets and costs incurred for the business before it was incorporated can generally be introduced and relieved, within time limits and at appropriate values. Keep the receipts and bring them into the first accounts deliberately rather than as an afterthought.