Corporation Tax Allowable Expenses — The Complete List for Small Companies

Every pound your company spends on allowable expenses reduces your Corporation Tax bill. But what actually counts as allowable?

Here's the complete guide — no jargon, just practical answers for small company directors.

The golden rule

An expense is allowable for Corporation Tax if it was incurred wholly and exclusively for the purposes of the trade. That's HMRC's language. In plain English: the spending must be entirely for business purposes.

If an expense is partly personal and partly business, you can sometimes claim the business portion — but you need to be able to justify the split.

Office and premises costs

Working from home

If you work from home, your company can pay you a flat-rate allowance of £6 per week (£26 per month) without needing receipts. This covers the additional household costs of working from home (heating, lighting, etc.).

Alternatively, you can claim a proportion of your actual home costs — but you'll need to calculate the business-use percentage and keep records.

Staff costs

Director's salary

Your own salary is an allowable expense for the company. Many small company directors pay themselves a salary just below the NIC threshold (currently £12,570/year) and take the rest as dividends. This is perfectly legitimate tax planning.

Travel and vehicles

Commuting is not allowable

Your regular journey from home to your normal workplace is not a business expense — it's commuting. However, if you travel from your normal workplace to a client site or temporary workplace, that journey is allowable.

Professional services

Technology and equipment

Capital allowances vs revenue expenses

Small items (under ~£1,000) are usually treated as revenue expenses and deducted directly. Larger items (computers, vehicles, machinery) are capital expenditure — you claim them through capital allowances instead.

The Annual Investment Allowance (AIA) lets most small companies deduct 100% of qualifying capital expenditure up to £1 million per year. So in practice, the distinction matters less than it used to.

Marketing and advertising

Financial costs

Insurance

Subscriptions and memberships

What's NOT allowable

Some expenses that directors commonly try to claim but can't:

The entertainment trap

This is the one that catches most small company directors. Taking a client to lunch? Not allowable. Buying drinks at a networking event? Not allowable. HMRC's rules on entertainment are strict and there are very few exceptions.

Staff entertainment (like a Christmas party) is allowable — up to £150 per person per year. But client entertainment never is.

How expenses reduce your tax bill

Corporation Tax is calculated on your taxable profits, which is:

Taxable profits = Income − Allowable expenses

For the 2025/26 tax year:

• Profits up to £50,000: taxed at 19% (small profits rate)
• Profits between £50,000 and £250,000: taxed at 26.5% (marginal rate)
• Profits over £250,000: taxed at 25% (main rate)

So every £1,000 in allowable expenses saves you between £190 and £265 in Corporation Tax.

How to report expenses on your CT600

When you file your CT600, your total allowable expenses are reflected in:

• Box 145 (Turnover) — your total income
• Box 155 (Trading profits) — income minus allowable trading expenses
• The difference between these two boxes is effectively your deductions

You don't need to list every expense individually on the CT600. The form asks for totals. But you must keep records of all expenses in case HMRC asks to see them.

Record-keeping requirements

HMRC requires you to keep records for 6 years after the end of the accounting period. This includes:

• Receipts and invoices
• Bank statements
• Mileage logs (if claiming mileage)
• Contracts and agreements

Related Articles

• Capital Allowances and Corporation Tax: How to Claim Tax Relief
• VAT Registration and Corporation Tax: How They Interact
• Corporation Tax on Bank Interest: How It Works
• Corporation Tax Year-End Planning: 12 Tips

Filing your CT600 with Taxpipe

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Enter your turnover and profit figures, and we handle the rest: generating the CT600, computing your Corporation Tax, creating iXBRL accounts, and submitting directly to HMRC.

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Related articles:

• Directors' Loan Accounts and Your CT600
• R&D Tax Relief for Small Companies: What to Claim
• Corporation Tax for Contractors: IR35 and Your CT600
• Annual Investment Allowance (AIA) Guide
• Dividends vs Salary: The Tax-Efficient Way to Pay Yourself
• Flat Rate VAT Scheme & Corporation Tax: How They Interact

Related: company capital gains and Corporation Tax

Related: trading loss relief on your CT600

Related: CIS and Corporation Tax guide

Related: Corporation Tax rates for 2025/26

Related: what happens in an HMRC enquiry

Related guides:

• CT600 Filing Checklist — Everything You Need
• How to File Your CT600 Without an Accountant

Looking for more ways to save? 12 Legal Ways to Reduce Corporation Tax →

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