What UK companies can — and cannot — deduct as business expenses

UK Corporation Tax is charged on profits — revenue minus allowable deductions. HMRC's test for an allowable deduction is that the expense must be 'wholly and exclusively' incurred for the purposes of the company's trade. It is stricter than it sounds: 'I used it for work sometimes' does not pass. 'I used it entirely for work' does. For dual-purpose spending, only the business proportion is deductible.

Clear yes — always deductible. Director and employee salaries (including your own, processed through payroll). Accountancy fees, Companies House fees, and registered office costs. Professional subscriptions directly relevant to the business. Business travel: flights and hotels for genuine business trips, including flights from the Gulf to the UK for board meetings. Software and SaaS subscriptions used for company operations. Equipment purchased exclusively for business use.

Gray area — requires care. Home office: a reasonable proportion of rent and utilities attributable to business use is deductible — but only with a defensible calculation and records. Phone bills: only the business proportion, with a log to substantiate it. Company car: if also used for personal travel, HMRC requires a detailed mileage log and will disallow the personal proportion. Client entertainment: specifically disallowed under UK tax law as a deduction — this surprises many directors.

Clear no — these will be challenged. Personal expenses charged to the company without genuine business justification. Family members on the payroll who don't actually perform work — a pattern HMRC actively targets. The personal portion of dual-purpose trips: fly to London for a meeting, stay an extra week for tourism — only the business nights are deductible. Fines and penalties (including Companies House late-filing penalties) are not deductible.

Arab-specific pattern: a Gulf director who flies to London for a client meeting can deduct the flight, hotel for business nights, and their own meal costs. They cannot deduct a spouse's flights, an extended personal stay, or any private portion of a trip. Record-keeping: UK law requires retention of accounting records for 6 years. Keep invoices, receipts, bank statements, and travel logs. Cloud accounting (Xero, QuickBooks) connected to your business account makes this automatic.