Disallowable Expenses for Corporation Tax: The Complete List

You know your company can deduct business expenses to reduce its corporation tax bill. But not everything the company spends money on qualifies. Some expenses are "disallowable" — meaning you still record them in your accounts, but you must add them back when calculating taxable profits on your CT600.

Getting this wrong in either direction is costly. Forget to add back a disallowable expense and you'll underpay tax — leading to penalties if HMRC investigates. Add back too much and you'll overpay, giving HMRC an interest-free loan.

Here's the definitive list of what's disallowable, what's partially disallowable, and the common grey areas that catch directors out.

How Disallowable Expenses Work on the CT600

Your company's profit and loss account shows accounting profit. But taxable profit (what HMRC charges corporation tax on) is often different. The CT600 requires you to make tax adjustments:

Start with your accounting profit (or loss)
Add back disallowable expenses
Deduct any income that's not taxable, plus capital allowances
The result is your taxable profit

These adjustments go in Box 172 (Expenses not deductible) and related boxes in the computation.

Example: Your company made £50,000 accounting profit. It spent £3,000 on client entertaining and £500 on a parking fine. Both are disallowable. Taxable profit: £50,000 + £3,000 + £500 = £53,500.

The Complete List of Disallowable Expenses

1. Client and Business Entertaining

Fully disallowable. This is the most common one directors get wrong.

Any expenditure on entertaining clients, suppliers, or potential customers cannot be deducted, including:

Restaurant meals with clients
Event tickets (sporting events, concerts, theatre)
Hospitality at conferences or trade shows
Gifts to clients (with one exception — see below)
Corporate entertaining events
Christmas parties for clients (staff parties are different — see below)

The gift exception: Small branded gifts costing under £50 per recipient per tax year that include a conspicuous advertisement for the company (e.g., branded pens, calendars) are allowable. Food, drink, and tobacco gifts are always disallowable regardless of cost.

2. Staff Entertaining — The £150 Rule

Staff entertaining is allowable — but only up to a point.

Annual events (Christmas party, summer BBQ) open to all staff are allowable if the cost per head is £150 or less (including VAT)
If the cost exceeds £150 per head, the entire amount becomes a benefit in kind — not just the excess
Multiple events can share the £150 allowance

Tip: A Christmas party costing £120 per head and a summer event at £25 per head = £145 total. Both are allowable. But add a £10 team lunch and you're at £155 — making at least one event fully taxable as a BIK.

Staff entertaining that isn't an annual event open to all employees (e.g., a team dinner for five people) is still generally allowable as a business expense for corporation tax, but may trigger BIK reporting.

3. Fines and Penalties

Fully disallowable. No exceptions.

Parking fines (even for a company vehicle on business)
Speeding fines
HMRC penalties for late filing or late payment
Health and safety fines
Environmental fines
Planning enforcement penalties
Any fine imposed by law

This includes fines paid to any regulatory body, whether UK or overseas.

4. Political Donations

Fully disallowable. Donations to political parties cannot be deducted from taxable profits. This includes:

Direct donations to political parties
Sponsorship of political events
Contributions to political campaigns
Payments to trade unions that make political contributions (the political portion)

5. Charitable Donations — Special Rules

Charitable donations are generally allowable but through a specific mechanism:

Cash donations to UK-registered charities qualify for Gift Aid relief — they're deducted from total profits (not as an expense but as a separate deduction)
Donations of equipment, stock, or shares may qualify for relief
Sponsorship payments (where the company gets advertising in return) are deductible as a normal business expense — not as a charitable donation

Disallowable: Donations to non-qualifying bodies, overseas charities without UK registration, and payments where the company receives substantial benefit in return.

6. Depreciation and Amortisation

Fully disallowable. This is a big one.

Your accounts include depreciation on fixed assets (computers, vehicles, equipment, furniture). For tax purposes, you must add back all depreciation and replace it with capital allowances.

The same applies to amortisation of intangible assets (goodwill, patents, trademarks).

Why? HMRC has its own system for giving tax relief on capital expenditure (capital allowances), which uses different rates and rules than accounting depreciation.

Accounting treatment	Tax treatment
Depreciation (e.g., 25% reducing balance)	Added back — disallowable
Capital allowances (AIA, WDA)	Deducted instead

Practical impact: A company buying a £30,000 van might depreciate it over 4 years (£7,500/year). But for tax, the full £30,000 can be claimed via the Annual Investment Allowance in year one. The CT600 adds back the £7,500 depreciation and deducts £30,000 in capital allowances.

7. Non-Trade Expenditure (Personal Expenses)

Fully disallowable. Any expenditure that isn't "wholly and exclusively" for the trade:

Director's personal shopping paid by the company
Family holidays booked through the business
Personal insurance policies paid by the company
Personal clothing (unless genuine uniforms or protective equipment)
Home improvements (even if you work from home — the allowable portion is limited)
Gym memberships for the director

If a personal expense is paid by the company, it should be debited to the director's loan account — creating a loan, not a business expense.

8. Legal Costs — It Depends

Legal costs are a grey area:

Allowable:

Legal fees for trade-related disputes (debt collection, contract disputes)
Employment tribunal defence costs
Lease negotiation for business premises
Regulatory compliance advice
HMRC investigation costs (defending your CT600 or VAT returns)

Disallowable:

Legal fees for acquiring a capital asset (added to the asset cost instead)
Legal fees for buying/selling shares or a business
Criminal defence costs (even if trade-related)
Fines resulting from legal proceedings (see above)

9. Provisions and Contingent Liabilities

Usually disallowable. Accounting standards require you to provide for expected future costs (e.g., a warranty provision, a dilapidations provision). Tax law generally doesn't allow deductions for provisions until the expense is actually incurred.

General provisions (e.g., "we expect £5,000 of bad debts") — disallowable
Specific provisions (e.g., "Customer X owes £3,000 and has gone into administration") — may be allowable
Dilapidations provisions — disallowable until the lease ends and the cost is incurred

10. Dividends Paid

Disallowable. Dividends are a distribution of after-tax profits, not an expense. They cannot reduce taxable profit. This seems obvious, but some directors try to record them as an expense.

11. Corporation Tax Itself

Disallowable. The corporation tax charge in your accounts must be added back. Tax on profits cannot be deducted from profits — that would be circular.

12. Capital Expenditure

Disallowable as a revenue expense. Spending on assets with lasting value (equipment, vehicles, property improvements) is capital, not revenue. The accounting expense (or depreciation) is disallowable, but you may claim capital allowances instead.

13. Pre-Trading Expenses

Mostly allowable — with conditions. Expenses incurred in the seven years before trading starts can be deducted as if incurred on the first day of trading, provided they would have been allowable had the company already been trading.

However, pre-trading capital expenditure follows capital allowance rules, not revenue deduction rules.

14. Clothing

Usually disallowable. The "everyday clothing" rule applies even if you only wear it for work:

Business suits — disallowable (you could wear them outside work)
Branded uniforms — allowable (clearly work-specific)
Protective equipment (hard hats, safety boots, hi-vis) — allowable
Costumes (actors, performers) — allowable

Grey Areas That Catch Directors Out

Working from home

If a director works from home, the company can pay a flat-rate allowance of £6/week (£26/month) without evidence. Anything above this requires proof that the company shares actual costs (heat, light, broadband) with a clear business-use calculation.

Mobile phone

One mobile phone contract per employee is a tax-free benefit and a fully allowable company expense. But a second phone or personal-use tablet may not qualify.

Travel expenses

Travel between home and a permanent workplace is disallowable (commuting). Travel to temporary workplaces (client sites, one-off meetings) is allowable. For directors, this distinction can be complex — especially if you work from home.

Accountancy fees

Allowable for preparing accounts and filing tax returns. The portion relating to personal tax advice (your self-assessment) is disallowable for the company.

Insurance

Business insurance (professional indemnity, public liability, employer's liability) is allowable. Key person insurance is allowable if it's to protect trading income. Personal insurance paid by the company (life insurance, private medical for the director) is allowable as a business expense but may trigger a BIK charge.

How to Handle Disallowable Expenses on Your CT600

When filing your CT600, you need to:

Calculate total disallowable expenses from your profit and loss account
Enter the total in Box 172 — "Expenses not deductible for tax purposes"
Prepare a tax computation showing the adjustment from accounting profit to taxable profit
Keep records — HMRC can ask for a breakdown of what you've added back

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Frequently Asked Questions

What happens if I accidentally claim a disallowable expense?

If HMRC opens an enquiry and finds you've deducted disallowable expenses, you'll need to pay the underpaid tax plus interest (currently around 7.5%). If HMRC believes it was careless, they can charge a penalty of up to 30% of the underpaid tax. Deliberate errors can attract penalties of up to 100%.

Can I claim entertaining if the event was to win new business?

No. The purpose of the entertaining doesn't matter. Client entertaining is disallowable even if it directly led to a new contract worth millions. The rule is absolute.

Are Christmas gifts to staff allowable?

Yes — as long as they're not cash or cash vouchers. Gifts costing £50 or less per employee qualify as a "trivial benefit" and are tax-free for both the company and the employee. Above £50, it becomes a BIK.

Is depreciation always disallowable?

Yes, for corporation tax purposes. You always add back the accounting depreciation and claim capital allowances instead. Even if the depreciation rate matches the capital allowance rate, you still make the adjustment.

Can I deduct the cost of forming the company?

No. Company formation costs (incorporation fees, legal fees for articles of association) are capital expenditure and not deductible. However, pre-trading revenue expenses incurred within seven years of starting to trade can be deducted.

Are bank charges and interest allowable?

Bank charges: Yes, fully allowable. Loan interest: Yes, if the loan was for business purposes. Interest on a director's personal loan is not deductible by the company. There are also restrictions on interest deductions for very large companies (the corporate interest restriction), but this rarely affects small companies.

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Disallowable Expenses for Corporation Tax (Full List)