Understanding How Profits and Costs Affect Your Tax Bill
Corporation Tax is based on net profit—not total revenue. That means you’re taxed only on what’s left after deducting allowable expenses, reliefs, and capital allowances from your annual income.
– Revenue increases profit
– Business expenses and tax reliefs reduce it
The smaller your taxable profit, the less Corporation Tax you’ll pay.
Current Corporation Tax Rates (as of April 2023)
– Profits up to £50,000 – 19% (small profits rate)
– Profits over £250,000 – 25%
– Tapered rate applies for profits between £50,001 and £250,000
What Costs Can You Deduct from Corporation Tax?
To be deductible, expenses must be incurred wholly and exclusively for business purposes. In other words, the cost must relate directly to running your company.
Examples of allowable costs include a train ticket to a client meeting or a laptop for work. Costs like personal holiday travel or general clothing are not allowable.
Common Business Expenses You Can Claim
Travel Costs
You can claim:
– Public transport fares
– Fuel costs for company vehicles
– Mileage using your own car
– Parking, tolls
– Meals, overnight stays
– Business-related calls
If you’re commuting to a temporary workplace (less than 24 months), travel costs may be allowable.
Meals & Subsistence
Flat-rate amounts:
5–10 hours away: £5
10–15 hours away: £10
Over 15 hours (after 8pm): £25
Working beyond 8pm: additional £10
Keep receipts for all claims.
Using Your Home as an Office
Claim £6/week or £312/year as a flat rate. You can claim more with supporting evidence of higher costs.
Phone & Internet Costs
Claim mobile and internet bills if contracts are in the company name. If personal, only business-related usage may be claimed.
Office Equipment and Supplies
Include:
– Stationery
– Printing costs
– Software subscriptions
– Low-cost IT equipment
Large, long-term assets should be claimed via Capital Allowances.
Training and Development
Allowed if training directly enhances current business skills. Starting a new business or expanding into unrelated fields is not covered.
Financial & Legal Costs
Claim:
– Accountant/legal fees (not for lawbreaking)
– Bank charges
– Loan interest
– Bad debts (under traditional accounting)
Marketing & Advertising
Allowed:
– Adverts
– Website costs
– Bulk mail, free samples
Not allowed:
– Client entertainment
Professional Subscriptions
Claim for membership to trade associations or professional bodies and trade journals, if relevant to your work.
Staff Entertainment & Trivial Benefits
Staff parties are allowed if:
– Open to all
– Less than £150/person
– Held annually
Trivial Benefits (e.g., small gifts):
– Must be under £50
– Not cash or a reward
– Not contractual
Workwear & Uniforms
Claim:
– Uniforms
– Protective gear
– Costumes (for performers)
Everyday clothes are not allowable.
Eye Tests and Health Costs
If employees use screens, claim for eye tests and VDU-specific lenses. General glasses are not fully deductible.
Capital Allowances for Long-Term Assets
Applies to:
– Vehicles
– Machinery
– Long-term office equipment
– Renovation in certain UK areas
– Patents, R&D, know-how
Other Tax Reliefs – Terminal Loss Relief
If your company has ceased trading and made a loss in the final 12 months, you may carry it back up to 3 years to offset profits.
Final Thoughts
This isn’t a full list. Always speak to your accountant for tailored advice and make sure you’re claiming everything you’re entitled to—within HMRC rules.