When you’re a director of a limited company, you’re not running it as your own money – you’re running it on behalf of a separate legal entity that happens to be you. That distinction is the whole game. Get it right and your company pays the costs, claims the relief, and you end up with more in your pocket. Get it wrong and you’re either paying personal tax on company benefits or paying personal cash for things the company should have covered. This guide walks through what your limited company can actually claim in 2026.
The “wholly and exclusively” test
The fundamental HMRC test for any company expense is the same as for a sole trader: it must be incurred wholly and exclusively for the purposes of the trade. For a Ltd, “trade” means the company’s business, not the director’s personal interest. Mixed-purpose expenses (a meal that’s half-client-meeting, half-catch-up-with-a- friend) usually fail the test, although there are bright-line statutory exceptions for specific categories like home use and mileage.
The legal separation between you and the company also means you can be reimbursed for genuine business expenses you’ve paid personally (mileage, train tickets, hotel nights). The company books the expense and pays you the reimbursement; you receive it tax-free.
Common straight-through expenses
The plain-vanilla deductible categories: office rent, utilities and business rates; equipment (subject to capital allowances – see below); travel and accommodation for genuine business trips, but not the commute to a regular workplace; subscriptions to professional bodies on HMRC’s approved list; insurance (professional indemnity, public liability, cyber); bank charges, accountant fees, software subscriptions; marketing, advertising and website costs; and a mobile phone provided the contract is in the company’s name.
Director-specific rules: the BIK trap
Benefits in kind (BIKs) are the most expensive surprise for new directors. Anything the company provides to a director that has personal-use value is a BIK and triggers two charges: Class 1A NIC at 15% for the company and income tax for the director at marginal rate. Common examples: a company car used personally, private health insurance, a personal phone bill paid by the company, beneficial loans, living accommodation. The fix is structural: either bill back personal use, take the contract in the company’s name where allowed, or pay privately and skip the company route entirely.
Working from home as a director
HMRC permits a flat £6/week (£312/year) “use of home” allowance to a director with no records needed. For most one-person Ltds running from a kitchen table, that’s the right answer. A higher claim requires formal apportionment – proportional rooms × hours of business use × utility costs – and is only worth the work if you have a substantial dedicated home office. Note: a fully dedicated room can also affect the principal-residence Capital Gains Tax exemption when you sell, which is another reason most directors stick to the flat allowance.
Capital allowances vs expenses
Anything you buy that lasts more than 12 months is a capital purchase rather than a revenue expense, and the relief comes via capital allowances. The big ones in 2026/27 are the Annual Investment Allowance (100% deduction in year of purchase, up to £1m/year); Full Expensing (100% first-year for plant and machinery, companies only); the cars regime (varies by CO2 emissions, with 100% first-year allowance for fully electric); and the Structures and Buildings Allowance at 3% over 33⅓ years. For most small Ltds, the AIA absorbs the whole capital spend in the year of purchase, so the practical difference between “expense” and “capital” disappears.
Employee expenses (and the director-as-employee)
When the company reimburses an employee – including the director acting as an employee – for a genuine business expense, the reimbursement is tax-free up to HMRC limits. The most-used reliefs are mileage at the approved rates (45p/mile for the first 10,000 business miles, 25p/mile after) and reasonable subsistence on overnight business trips. Two useful exemptions you’ll come back to: the trivial benefits exemption (gifts up to £50 each, no NI, no income tax, with a £300 annual cap for close-company directors) and the £150/head annual party exemption for events open to all staff.
Pension contributions
Company pension contributions for a director are deductible for Corporation Tax, within the £60,000 annual allowance (tapered for very high earners with threshold income above £200,000). Combined with the normal salary/dividend mix, employer pension contributions are usually the most tax-efficient pound the company can spend on the director, because the contribution dodges Corporation Tax, employee NIC, employer NIC and dividend tax all at once. See our salary vs dividends guide for the full picture.
What you can’t claim
Not deductible, regardless of intent: client entertaining (lunches, hospitality, gifts over the trivial limit); fines, parking tickets, late-payment penalties; personal clothing not protective and not branded; the director’s commute to a regular workplace; personal mortgage payments and personal council tax; and anything taken for personal use without billing back.
Records you must keep
Every receipt, invoice, mileage log, bank statement, payroll record and VAT submission must be kept for at least 6 years from the end of the accounting period . HMRC can extend if there’s an open enquiry. Digital copies are accepted (photos, scans, PDFs) provided they’re legible and retrievable for the full retention period; you don’t need to keep paper originals once you have a clean digital copy attached to the transaction.
Frequently asked questions
The questions directors ask most often when working out what their company can claim.
Can my company pay for my mobile phone?
Yes, with no Benefit in Kind, if the contract is in the company's name. If the phone is in your personal name and the company reimburses you, the entire bill (including business calls) is taxable as a benefit. The simplest approach is to take a phone contract in the company's name; HMRC has explicitly stated this is a tax-free benefit, even if the phone is also used personally.
Can my company buy me a laptop for personal and business use?
Yes, and there's no Benefit in Kind if private use is 'not significant' (HMRC's wording, deliberately vague). In practice, a laptop bought for work that you also use occasionally for personal email or browsing is fine. A games console 'for testing' is not.
My company pays my private health insurance. Is that allowable?
Yes, the company can pay it and the cost is deductible for Corporation Tax. But the premium is a Benefit in Kind reportable on a P11D, with Class 1A NIC for the company (15%) and income tax for you (at your marginal rate). Often it ends up no better than just paying privately, but with extra paperwork.
I drove my own car for a client meeting. How does the company pay me back?
Reimburse via the HMRC approved mileage rates (AMAP): 45p/mile for the first 10,000 business miles, 25p/mile after, calculated on round-trip business miles only (not commute). The company gets a Corporation Tax deduction; you receive the payment tax-free. No BIK applies.
Can my company pay for a co-working space if I sometimes work from home?
Yes — co-working subscriptions for business work are clearly deductible. There's no rule that you must pick 'home' or 'office': you can claim the £6/week home allowance AND a co-working subscription if both are genuinely used for the business.
Can I expense a Christmas party?
Yes, up to £150 per attendee (employees and their plus-ones), provided it's annual, open to all staff, and the cost is genuinely £150 or less per head (including VAT, transport, and accommodation if any). If you spend £151, the entire cost becomes a Benefit in Kind. Single-director companies can claim this for themselves.
Can my company give me a £500 director bonus tax-free?
No. Bonuses are PAYE-able salary, taxed at your marginal income tax rate plus employee and employer NIC. The trivial benefits exemption only allows £50 per non-cash benefit, with a £300/year cap for close-company directors. Cash bonuses are never trivial benefits.
What's the difference between an 'expense' and a 'capital allowance'?
An expense reduces taxable profit in the year it's incurred. A capital allowance is the equivalent for capital items (assets you'll use for more than a year — equipment, vehicles, buildings). The Annual Investment Allowance gives 100% deduction in year one for most plant and machinery up to £1m/year, so for many small Ltds the practical difference disappears. Bigger capital items or items not eligible for AIA are written down at 18% or 6% per year.
