What the test means in practice
A cost is deductible when it is incurred wholly and exclusively for the purposes of the trade. If it carries a private benefit that is more than incidental, it usually fails. It fails in full rather than in part, unless the business element can be separated.
General information for the 2026/27 tax year, not advice. Whether it applies to a particular company depends on its facts, which is what the 20-minute call is for.
A laptop used for work and occasionally at home is fine. A suit is not, because you need clothes anyway. A meal while working late is not; a meal while travelling on business is.
The ones directors miss
Use of home. If you work from home there is a flat rate you can claim without evidence, or a proportion of actual costs if you keep the records.
Mileage. For 2026/27 the approved rate is 55p a mile for the first 10,000 business miles in your own car, and 25p after that. It is often worth more than putting the car through the company.
Pre-trading expenditure. Costs in the seven years before trading started can generally be claimed in the first period.
Training that maintains or updates the skills used in the company’s trade.
The ones that get challenged
Entertaining clients is not deductible for Corporation Tax, and the VAT is not recoverable. Staff entertaining is different, with an annual events exemption.
Company cars create a benefit in kind charged on the director, and for most petrol and diesel cars the tax costs more than the saving. Electric cars are treated far more favourably.
Anything paid personally with no record. If it is not in the books it does not exist.
The rule that saves the most trouble
Keep the receipt and note what it was for at the time, not in January. HMRC’s records requirement is not onerous. Reconstructing a year of expenses from a bank statement is guesswork, and guesswork is what gets adjusted.
Common questions
Can I claim my mobile phone?
If the contract is in the company’s name, yes, with no benefit charge even where there is some private use. In your own name, only the identifiable business calls.
Can I claim for working from home?
Yes. There is a flat rate that needs no evidence, or a proportion of actual household costs if you keep records. The flat rate is easier and lower.
Is client entertaining deductible?
No. It is added back for Corporation Tax and the VAT is not recoverable. Staff entertaining is treated differently.
What about a company car?
It creates a taxable benefit for you and a Class 1A charge for the company. For most petrol and diesel cars the tax outweighs the benefit. Electric is far more favourable.
