Corporation Tax rates, expenses and reliefs
Expenses
Limited companies may be able to deduct some of the costs of running a business when calculating taxable profit for Corporation Tax.
To determine if a cost (also known as an expense) can be deducted, you need to know if it:
- is a capital expense or a revenue expense
- only has a business purpose
Some expenses are ‘specifically disallowed’ - for example, entertaining clients. These expenses cannot be deducted.
There are different rules for expenses which are made in relation to a loan relationship and intangible assets.
Whether something is a capital or revenue expense can depend on:
- what the business does
- what the business has spent money on
- how the business uses any assets bought as part of the business
- the effect that the expense has on the business
Make sure you understand the reason for each expense and keep accurate and detailed business records.
If you need more help, speak to an accountant or agent - they can help you work out which expenses are capital or revenue.
Capital expenses
Capital expenses commonly include the costs to buy, sell or improve assets that the company uses over a long time.
For example:
- buying a van to deliver goods - it’s a long-term tool for the business
- buying land to build a warehouse to store your products - the land is a long-term asset
- paying legal fees to buy a property or secure a long-term contract - these relate to buying a capital asset
- buying a server for the business that will be used for several years
Capital expenses cannot be deducted for Corporation Tax purposes. However, the company may be able to claim capital allowances for some of these expenses.
Revenue expenses
Revenue expenses are the costs included in the day-to-day running of the business. These are usually regular or recurring costs.
For example:
- buying a van to sell on because the business sells vans - the van is part of the trading stock
- buying land because the business develops properties and builds houses for sale - the land is part of the trading stock
- paying an accountant to prepare the company’s accounts - this is part of running the business
You can deduct revenue expenses when calculating the company’s taxable profit if they have been incurred wholly for a business purpose. You will need the taxable profit figure to complete the Company Tax Return.
Further guidance
If you need more information, check the technical guidance on the difference between capital and revenue expenses.