Allowable Business Expenses

Key facts

An expense must be incurred wholly and exclusively for the purposes of the trade to be deductible.
Revenue expenses (day-to-day costs) are generally deductible; capital expenditure is not — claim capital allowances instead.
Staff costs, premises, professional fees, insurance, and marketing are all typically allowable.
Dual-purpose expenses may be apportioned if the business element is clearly identifiable.

The “Wholly and Exclusively” Rule

For an expense to be deductible against Corporation Tax, it must be incurred wholly and exclusively for the purposes of the company’s trade.^[1] This is the fundamental test applied to every business cost.

The test focuses on the purpose of the expenditure, not its effect. If an expense has a dual purpose (partly business, partly non-business), the whole amount may be disallowed unless the business element can be separately identified and a reasonable apportionment made.^[2]

Revenue vs capital: Only revenue expenditure (day-to-day running costs) is deductible as an expense. Capital expenditure (buying or improving long-term assets) is not deductible — you claim capital allowances instead.^[4]

Staff Costs

Employee-related expenses are usually the largest allowable deduction for most companies:

Salaries, wages, and bonuses (including directors’ salaries)
Employer’s National Insurance contributions
Employer pension contributions
Recruitment and agency fees
Staff training and development costs
Employee benefit costs (where taxable as a BIK and reported on P11D)
Redundancy payments (statutory and contractual)
Subcontractor costs

Premises & Overheads

Rent and business rates
Utility bills (gas, electricity, water)
Property insurance
Repairs and maintenance (but not improvements — these are capital)
Cleaning and security
Service charges on leased property

Repairs vs improvements: Replacing a broken window with a like-for-like equivalent is a repair (allowable). Replacing single-glazed windows with double-glazed throughout is likely an improvement (capital — not deductible, but may qualify for capital allowances or Structures & Buildings Allowance).

Travel & Subsistence

Business travel costs (train, taxi, flights)
Mileage allowance payments to employees using their own vehicles
Hotel accommodation for business trips
Subsistence (meals) during qualifying business travel
Company vehicle running costs (fuel, insurance, maintenance, road tax)

Travel between home and a permanent workplace is commuting and is not allowable. Travel to temporary workplaces is generally deductible.^[2]

Professional Fees & Financial Costs

Accountancy and audit fees
Legal fees (relating to the trade — e.g. contract drafting, employment disputes)
Professional subscriptions and memberships
Bank charges and overdraft interest
Loan interest (on trading loans — see loan relationships rules)
Credit card processing fees
Debt collection costs
Bad debts written off (where specific and trade-related)

Insurance, Marketing & Other Allowable Costs

Insurance

Professional indemnity insurance
Public and employer’s liability insurance
Contents and equipment insurance
Key-person insurance (where a revenue deduction is appropriate)

Marketing & Advertising

Website design, hosting, and maintenance costs
Online and offline advertising
Printed marketing materials
Trade show and exhibition costs
Sponsorship (where the primary purpose is advertising — not entertaining)

Other Commonly Allowable Costs

Office supplies and stationery
Software licences and SaaS subscriptions
Telephone and broadband charges
Postage and courier costs
Stock and raw materials consumed
Research and development expenditure (may also qualify for enhanced R&D relief)

Tip: Always keep receipts and documentary evidence for every expense. HMRC may request supporting records during a compliance check, and the burden of proof lies with the company.^[3] The deductions you claim feed straight into the tax computation when you prepare your CT600 online.

Frequently Asked Questions

What is the “wholly and exclusively” rule for Corporation Tax?

An expense must be incurred wholly and exclusively for the purposes of the company’s trade to be deductible against Corporation Tax. The test focuses on the purpose of the expenditure, not its effect.

Can my company claim Corporation Tax relief on staff salaries?

Yes. Salaries, wages, bonuses, employer’s NIC, pension contributions, recruitment fees, and staff training costs are all typically allowable business expenses for Corporation Tax.

Is capital expenditure an allowable expense for Corporation Tax?

No. Capital expenditure (buying or improving long-term assets) is not deductible as an expense. Instead, companies claim capital allowances such as the Annual Investment Allowance or full expensing.

Can I deduct dual-purpose expenses from Corporation Tax?

A dual-purpose expense may be partly deductible if the business element can be clearly identified and a reasonable apportionment made. If the elements cannot be separated, the whole amount may be disallowed.

Sources

Corporation Tax: trading profits and losses — GOV.UK
Business Income Manual: BIM30000 – Deductions: general rules — HMRC
Expenses if you're self-employed (principles apply to companies) — GOV.UK
Business Income Manual: BIM35000 – Capital or revenue — HMRC

Allowable Business Expenses for Corporation Tax