This guide outlines the main areas of an expenses policy, what are allowable vs disallowable expenses, business travel and the strategic vehicle question and some top tips to reduce your tax bill.

Expenses policy – A health check

A clear and compliant expenses policy is essential. Ask yourself:

• Are employees clear on what they can claim and are there limits (e.g. meals, accommodation, entertaining)?
• Is VAT recorded correctly (e.g. 0% on train tickets, none on flights)?
• Do you have a system to capture expenses and check for errors (e.g. missing receipts)?

If you’re unsure, it may be time to update your policy. Also, if using cloud accounting, are invoices / receipts attached in the software and VAT rules set up correctly?

Consistent categorisation reduces queries, so can streamline your year-end.

Allowable and disallowable expenses

Distinguish between expenses allowed in business accounts and those eligible for tax relief is fundamental. Missing allowable costs inflate profits and increase tax, whilst some expenses are better claimed through the business than paid personally, even though not tax-deductible.

Only business-related expenses are included in accounts, with non-business costs recorded as personal (e.g. moved to director’s loan). However, if part of a cost is solely for business (e.g. flights to a meeting), that element may be included. Costs for accompanying family (e.g. flights, meals) are personal though. Business expenses must still be necessary, so if the meeting was virtual, the travel costs are personal.

Expenses must be “wholly and exclusively” for business to meet HMRC guidance:

• Work-related (e.g. client travel), properly documented (invoices, receipts).
• Non-compliance risks disallowed expenses, tax liabilities, penalties, or investigations.

You might however be overlooking legitimate expenses, so here is a summary on the correct treatment for common overheads:

Travel and entertaining – ambiguity around alcohol

When it comes to business expenses, entertaining and travel are two areas where alcohol often creates confusion. Understanding the rules is essential to ensure compliance with tax regulations and internal policies.

l costs to temporary sites, client meetings, or events, whether parking, train fares, mileage, or meals (excluding alcohol), are included in accounts and are tax allowable. Regular commuting is not.

Claiming mileage – is it tax efficient?

Mileage and fuel costs often cause confusion. Common pitfalls are:

• Claiming mileage when fuel is already paid by the business – a cost duplication.
• Not reporting private use of either a company vehicle or fuel; leaving a benefit-in-kind (BIK) untaxed.
• Failing to keep a mileage log – vital if challenged by HMRC.

HMRC Mileage Rates:

HMRC also allows an extra 5p per mile for each passenger on a work trip, but there’s no extra tax relief if you don’t receive this. Claims above HMRC’s rates are subject to PAYE & National Insurance.

Watch out for vehicle insurance too:

• Ensure your policy covers business use.
• Premiums for business vehicles should be paid by the business, not personally.

Personal vs company car – which is right for me?

Business owners often weigh the tax impact of using a company vs personal vehicle, so key considerations are:

Are you considering a purchase? Not all finance options offer tax benefits. If selling your business, transferring vehicle ownership beforehand may help too – ask your contact partner, before you buy.

Tax-savvy spending – cutting corporation tax

Beyond claiming valid expenses, there are some select planning opportunities to help reduce corporation tax:

• Pension Contributions: Employer payments are fully deductible if paid before year-end – watch out for the £60,000 annual allowance though!
• Capital Allowances: Eligible equipment and vehicles may qualify for 100% relief.
• R&D Tax Credits: Science and technology projects may unlock generous reliefs – expert advice is paramount.
• Avoid Late Payment Interest: Interest for overdue VAT, PAYE, and National Insurance isn’t deductible.
• Charitable Donations: Gifts to UK charities can reduce save tax at up to 25% of the donation – unused relief can’t be carried forward.

Summary of expenses

Managing expenses can be a minefield, but it also presents a valuable opportunity to strengthen your business. A thorough review ensures your policies are effective, your records are accurate and your tax position is optimised. At Shaw Gibbs, we work closely with business owners to simplify this process and provide clear, confident guidance. Speak to us to explore how a tailored review could benefit your business.