What Are Disallowable Expenses for Corporation Tax? A CT600 Guide

Disallowable expenses are costs recorded in a company’s accounts that cannot be deducted when calculating taxable trading profit. They are normally added back in the Corporation Tax computation, even when the accounting entry itself is correct.

This guide explains the wholly-and-exclusively rule, common disallowable costs, capital expenditure, mixed-purpose spending and the bridge from accounting profit to taxable profit.

Official sources: GOV.UK — Corporation Tax expenses, GOV.UK — company expenses you can deduct, and HMRC’s Company Tax Return guide.

This is general information, not advice for a particular company.

An allowable expense is a business cost that can be deducted when calculating taxable profit. A lower taxable profit generally means a lower Corporation Tax liability.

The starting point is the “wholly and exclusively” rule. Broadly, a revenue expense must be incurred wholly and exclusively for the purposes of the company’s trade. HMRC also applies specific rules that can allow, restrict or completely deny relief for particular costs.

Three questions provide a useful first check:

1. Is it a business expense? The purpose should be the company’s trade, not the director’s personal benefit.
2. Is it revenue rather than capital? Day-to-day running costs are usually revenue. Buying or improving a long-term asset is usually capital.
3. Is there a specific restriction? Client entertainment, most business gifts, fines and accounting depreciation are common examples.

An expense appearing in the profit and loss account is not automatically deductible for Corporation Tax. The accounts are the starting point; the tax computation makes the necessary adjustments.

HMRC’s overview is available in its guidance on company expenses deductible before Corporation Tax.

The following table summarises common costs. “Normally” matters: the purpose, evidence and circumstances can change the answer.

Salary, wages, bonuses and employer’s National Insurance contributions are normally deductible where they are genuine employment costs incurred for the company’s trade. This includes remuneration paid to directors, but being a director or family member does not make every payment automatically allowable.

Director and family salaries

The company should be able to show that the payment relates to real work and forms part of a commercially supportable remuneration package. Excessive payments with no clear connection to duties performed can be challenged.

Bonuses and unpaid remuneration

Timing rules can delay relief for remuneration that is accrued in the accounts but remains unpaid. If a year-end bonus is planned, document the decision, process it through payroll correctly and check when it must be paid for relief to fall in the intended accounting period.

Employer pension contributions

Employer contributions to a registered pension scheme are generally deductible when paid, subject to the wholly and exclusively test. HMRC may look at the overall reward package, particularly for a controlling director or connected employee. Personal annual allowance rules are separate from the company’s Corporation Tax deduction.

Travel costs are normally allowable when an employee or director travels for a genuine business journey—for example, to visit a client, attend a temporary workplace or travel between business locations. Qualifying costs can include public transport, mileage reimbursements, parking, accommodation and reasonable subsistence.

Ordinary travel from home to a permanent workplace is generally commuting and is not a deductible business journey merely because the company pays for it. Temporary-workplace, itinerant-working and homeworking rules can produce different outcomes, so the actual working pattern matters.

Evidence to retain

• Date and business purpose of the journey
• Starting point and destination
• Receipts for fares, hotels, parking and subsistence
• Mileage logs showing business miles where a personal vehicle is used
• Names of clients, suppliers or sites visited where relevant

If a trip has both business and private purposes, the private element must not be claimed. A clearly identifiable business portion may qualify where it can genuinely be separated.

A limited company can normally deduct the cost of offices, workshops and other premises used for its trade, including rent, business rates, utilities, cleaning, security and repairs of a revenue nature.

Homeworking needs more care. A company may reimburse qualifying additional household costs or make qualifying homeworking payments without creating a tax charge for the employee, provided the relevant conditions are met. This is not a blanket right to put a share of rent, mortgage payments or ordinary household expenditure through the company.

From 6 April 2026, the rules changed for employees seeking personal tax relief on unreimbursed homeworking costs. The separate exemption for qualifying employer payments continues. Directors should therefore distinguish between:

• costs paid or reimbursed by the company under the employer rules;
• a director’s attempt to claim personal employment-expense relief; and
• the company formally renting dedicated workspace from the director.

A rental arrangement can have personal tax, Capital Gains Tax and business-rates consequences. Use a written agreement and take advice before treating part of a home as company premises.

Accountancy and legal fees

Routine accountancy, bookkeeping, payroll and legal costs connected with day-to-day trading are normally allowable. Costs relating to company formation, issuing shares, acquiring a business, major restructuring or buying a capital asset are often capital or otherwise restricted.

Business insurance

Trade-related cover—such as employers’ liability, public liability, professional indemnity and qualifying business interruption insurance—is generally deductible. The purpose of the policy matters: cover for a private, investment or capital interest may not qualify.

Software and subscriptions

Recurring software licences, cloud services, trade-body subscriptions and professional publications are normally allowable when used for the business. A subscription with a substantial private purpose should be apportioned only where the business element is genuinely separable.

Training

Training that updates or develops skills used in the company’s existing trade is commonly supportable as a business cost. Training that equips someone for a new trade or has a strong personal purpose needs closer review.

Online filing tools are another routine administration cost. WeFile helps companies prepare and submit their CT600 online, with accounts and tax computations generated from the filing data.

Advertising, website costs, paid search, printed marketing and ordinary promotional activity are normally allowable when undertaken for the company’s trade. Entertainment and gifts have their own rules.

Staff entertainment

Genuine staff entertaining is generally deductible for the company, but the employee benefit rules must also be checked. A qualifying annual function can be exempt from benefit-in-kind tax where it is annual, open to all employees—or all employees at a particular location—and the total cost does not exceed £150 per head, including VAT and associated transport or accommodation.

Client entertainment

Entertaining clients, prospective customers and business contacts is generally disallowed for Corporation Tax, even where the event has a clear commercial purpose. Associated hospitality, venue and travel costs can also fall within the restriction.

Business gifts

Most gifts are disallowed. Limited exceptions include genuine samples and certain promotional gifts carrying a conspicuous advertisement where the total cost to the same recipient does not exceed £50 in the accounting period. The promotional-gift exception generally does not cover food, drink, tobacco or exchangeable vouchers.

Buying equipment, machinery, vehicles or other enduring assets is usually capital expenditure. The purchase is recorded on the balance sheet rather than deducted as an ordinary revenue expense.

Accounting depreciation spreads an asset’s cost through the profit and loss account, but depreciation is generally added back when calculating taxable profit. Tax relief may instead be available through capital allowances, including the Annual Investment Allowance, full expensing or writing-down allowances where the conditions are met.

Repairs that restore an asset to its existing condition are often revenue expenditure. Work that creates, replaces or substantially improves an asset may be capital. The description on an invoice is not decisive; the nature of the work is.

Our detailed guide to capital allowances for limited companies explains the main pools, balancing charges and CT600 analysis boxes.

Qualifying expenses incurred during the seven years before a company starts trading can generally be treated as incurred on the first day of the trade, provided they would have been allowable if incurred after trading began.

Possible examples include:

• market research connected with the intended trade;
• advertising before launch;
• business insurance;
• software subscriptions;
• rent and utilities for business premises; and
• professional fees relating to ordinary trading activity.

The rule does not turn capital expenditure, private spending or a specifically disallowed item into an allowable expense. Company incorporation costs and expenditure on acquiring capital assets still require their own treatment.

Keep pre-trading receipts and record the date trading actually began. Incorporation, opening a bank account and starting to trade are not necessarily the same date.

A mixed-purpose cost is not automatically lost. Where the business part is objectively identifiable and separable, that portion may be deductible. For example, an itemised phone bill may support a claim for business calls. An arbitrary percentage with no evidence is much weaker.

When a director or employee pays a company expense personally, the company can usually reimburse the genuine business amount. Record the cost in the appropriate expense category and the amount owed to the individual through the director’s loan account or expense claim process.

Do not confuse reimbursement with extracting money from the company. A payment unsupported by a business receipt may be salary, a benefit, a dividend or a director’s loan rather than an allowable expense.

The following items commonly require an add-back or separate treatment in the tax computation:

• Client entertainment and related hospitality
• Most business gifts outside the narrow statutory exceptions
• Fines and penalties imposed for breaking the law, including HMRC tax penalties
• Accounting depreciation and amortisation where tax relief is given under another regime
• Dividends, which are distributions of profit rather than business expenses
• Corporation Tax itself
• Private or personal expenditure of directors, shareholders or employees
• Capital expenditure claimed incorrectly as a day-to-day cost
• Legal and professional fees relating to capital transactions or changes to the company’s structure
• Excessive or unsupported provisions that do not meet the tax rules

“Disallowable” does not always mean the accounting entry is wrong. The cost may properly appear in the company’s accounts while being added back solely for tax.

Suppose a limited company reports an accounting profit before tax of £80,000. Its profit and loss account includes the following:

The simplified calculation is:

• Accounting profit: £80,000
• Add disallowable client entertainment: £600
• Add penalty: £150
• Add depreciation: £5,000
• Deduct capital allowances: £8,000
• Indicative taxable trading profit: £77,750

This example deliberately excludes other possible adjustments, losses, non-trading income, associated-company effects and reliefs. It shows why taxable profit is rarely obtained by simply copying the profit shown in the accounts.

A Company Tax Return consists of more than the CT600 form. The company normally files the form together with statutory accounts and a tax computation. Day-to-day expenses first appear in the accounts; the computation then reconciles accounting profit to taxable profit.

Typical tax-computation adjustments include:

1. starting with profit before tax;
2. adding back disallowable expenditure such as depreciation, penalties and client entertainment;
3. deducting allowable amounts not already reflected correctly, including qualifying capital allowances;
4. bringing in taxable income under the correct rules;
5. applying available losses and reliefs; and
6. calculating Corporation Tax at the applicable rate.

WeFile’s CT600 software guides users through the accounts and tax-adjustment steps, automatically recalculates the tax computation and produces the filing documents. For a broader walkthrough, read our Corporation Tax Return guide.

Good records support both the accounts and the tax deduction. Keep:

• supplier invoices and receipts;
• bank and card statements;
• contracts and subscription agreements;
• payroll, pension and benefits records;
• travel and mileage logs;
• expense claims and evidence of business purpose;
• board minutes for bonuses, pensions and significant transactions;
• fixed-asset invoices and capital-allowance schedules; and
• calculations supporting any business/private apportionment.

Companies generally need to preserve accounting and tax records for at least six years from the end of the relevant accounting period. Records may need to be kept longer if an HMRC enquiry is open, a transaction spans several periods or the records relate to a longer-lived asset.

Digital copies are acceptable where they remain complete, readable and accessible. A bank statement proves that money moved; it does not always prove what was purchased or why it was for the business.

For a typical company that is not within the quarterly instalment payment regime:

• Corporation Tax payment: normally due nine months and one day after the end of the accounting period.
• Company Tax Return: normally due 12 months after the end of the accounting period.

Large companies and some groups can have earlier payment obligations under quarterly instalment rules. Companies House accounts have a separate deadline, so do not use the CT600 filing date as the accounts deadline.

Use our Corporation Tax calculator for an estimate, and see the full guide to Corporation Tax deadlines and penalties for the timetable and consequences of filing late.

Before finalising the accounts and tax computation, review each significant expense category:

1. Confirm the business purpose and remove private costs.
2. Separate revenue expenditure from capital expenditure.
3. Identify client entertainment, gifts, fines and other specifically disallowed costs.
4. Add back accounting depreciation and review capital allowances separately.
5. Check payroll, bonuses and employer pension contributions for correct timing.
6. Review travel claims for commuting or private elements.
7. Confirm homeworking claims follow the correct employer rules.
8. Review legal and professional fees for capital or structural work.
9. Reconcile expense ledgers to invoices, bank records and VAT returns.
10. Keep a schedule explaining every tax adjustment.

A consistent year-end checklist reduces missed deductions and prevents unsupported claims from flowing into the CT600.

What are disallowable expenses for Corporation Tax?

They are costs shown in the company’s accounts that cannot be deducted when calculating taxable trading profit. Common examples include client entertainment, accounting depreciation, Corporation Tax itself, many fines and penalties, private expenditure and capital costs treated incorrectly as day-to-day expenses.

Are disallowable expenses entered in CT600 box 100?

No. Under the current CT600 Version 3 form, box 100 is the indicator for supplementary page CT600B. Disallowable expenses are added back in the Corporation Tax computation that accompanies the CT600.

Can a limited company claim every cost paid from its bank account?

No. Payment by the company does not determine tax treatment. The cost must meet the business-purpose rules and must not be capital, private or specifically disallowed.

Are meals an allowable business expense?

Meals can qualify as subsistence during eligible business travel. An ordinary lunch at or near a permanent workplace is generally personal. Meals provided while entertaining clients are normally restricted.

Is Corporation Tax itself an allowable expense?

No. Corporation Tax is not deducted when calculating the profit on which that tax is charged.

Are dividends tax-deductible?

No. Dividends are distributions to shareholders out of available profits, not remuneration or trading expenses.

Allowable expenses are not about claiming everything possible. They are about applying the right treatment consistently, keeping evidence and making a transparent bridge from accounting profit to taxable profit.

With WeFile, you can enter your profit and loss and balance sheet figures, record tax adjustments, review the calculated Corporation Tax and generate the CT600, accounts and tax computation from the same data. Start with our guide to filing a CT600 online or explore the WeFile Corporation Tax filing software.