Every pound your limited company spends on allowable expenses reduces your Corporation Tax bill. Yet most agency owners we speak to are either claiming too little (missing legitimate deductions) or claiming things they shouldn't be (risking an HMRC enquiry). This guide covers every expense category relevant to UK agencies, with current rates and practical examples.
Quick Summary: Key Numbers for 2026/27
The Golden Rule: Wholly and Exclusively for Business
Before claiming anything, you need to understand the test HMRC applies. An expense is allowable if it was incurred wholly and exclusively for business purposes. If it has a dual purpose (part business, part personal), it fails.
Passes the Test
- Adobe Creative Cloud subscription for client work
- Train ticket to a client meeting
- Freelance designer invoice for a project
- Professional indemnity insurance
Fails the Test
- Netflix subscription (personal entertainment)
- Gym membership (personal wellbeing)
- Suit for client meetings (ordinary clothing)
- Daily commute to your permanent office
The Grey Area
Some expenses are partially business. A mobile phone used 80% for work and 20% personally? You can claim 80% of the cost. But you need to be able to justify the split if HMRC asks. If in doubt, err on the side of caution or ask your accountant.
Office and Premises Costs
Whether you rent a studio, use a coworking space, or work from home, your workspace costs are generally deductible.
| Expense | Deductible? | Notes |
|---|---|---|
| Office rent | Yes | Full rent for dedicated business premises |
| Coworking membership | Yes | WeWork, Huckletree, local spaces |
| Business rates | Yes | Rates on business premises |
| Utilities | Yes | Electricity, gas, water, broadband for the office |
| Office supplies | Yes | Stationery, printer ink, postage, cleaning supplies |
| Repairs and maintenance | Yes | Repairs to business premises (not improvements) |
| Office furniture | Yes | Desks, chairs, shelving via AIA |
Working From Home
If you work from home regularly, your company can reimburse you for the business use of your home. There are two methods:
Flat Rate Method
£6/week
£312 per year, no receipts needed
- Simple and low admin
- No records required
- Usually saves less than actual costs
Actual Costs Method
£800-2,000+
Typical annual saving for agency owners
- Usually saves significantly more
- Claim rent, utilities, council tax, broadband
- Requires detailed records
Example: Actual Costs Calculation
Your home has 5 rooms. Your office is 1 room. You work from home 4 days a week. Annual household costs: £18,000 (rent, utilities, council tax, broadband). Deductible amount: £18,000 x 20% (1/5 rooms) x 80% (4/5 days) = £2,880. That saves you £720 in Corporation Tax at 25%, compared to just £78 with the flat rate method.
Staff and People Costs
For most agencies, people are the biggest expense. Almost all of these costs are fully deductible.
| Expense | Deductible? | Notes |
|---|---|---|
| Salaries and wages | Yes | Including your own director's salary |
| Employer NI contributions | Yes | 15% above £5,000 threshold (2026/27) |
| Employer pension contributions | Yes | Up to £60,000 annual allowance per person |
| Freelancer/contractor invoices | Yes | Often the largest agency expense |
| Recruitment costs | Yes | Agency fees, job board listings, LinkedIn Recruiter |
| Training and CPD | Yes | Courses, conferences, online learning |
| Staff benefits (trivial) | Yes | Up to £50 per benefit, not cash |
Software, Subscriptions, and Technology
Agency owners often underestimate how much they spend on software. The good news: it's all deductible if it's for business.
Fully Deductible Software
- Design: Adobe CC, Figma, Sketch, Canva Pro
- Project management: Asana, Monday, Notion, ClickUp
- Communication: Slack, Zoom, Microsoft Teams
- SEO/Marketing: Ahrefs, SEMrush, Moz, HubSpot
- Development: GitHub, AWS, Vercel, hosting
- Accounting: Xero, QuickBooks, FreeAgent
- Cloud storage: Google Workspace, Dropbox Business
Hardware (via AIA)
- MacBooks, iMacs, PCs (business use only)
- Monitors, keyboards, mice
- Printers and scanners
- Mobile phones (business use proportion)
- Cameras and video equipment
- Networking equipment and routers
100% deductible in year of purchase via the £1m Annual Investment Allowance
Travel and Transport
Business travel is deductible. Commuting to your permanent workplace is not. The distinction matters.
Mileage Rates (2026/27)
| Vehicle | First 10,000 miles | After 10,000 miles |
|---|---|---|
| Cars and vans | 45p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
| Bicycles | 20p per mile | 20p per mile |
Mileage Covers Everything
When claiming mileage, you cannot also claim fuel, insurance, servicing, road tax, or any other vehicle running costs. The mileage rate is designed to cover all of these. Keep a log of every business journey: date, destination, purpose, and miles driven.
Other Deductible Travel
| Expense | Deductible? | Notes |
|---|---|---|
| Train, bus, tube fares | Yes | For business travel only |
| Flights | Yes | Business class is fine if company policy allows |
| Hotel accommodation | Yes | Must be at a temporary workplace (under 24 months) |
| Meals while travelling | Yes | Reasonable cost during business trips |
| Parking and congestion charges | Yes | At business destinations only |
| Taxis and Ubers | Yes | For business journeys |
| Daily commute | No | Home to permanent workplace is never deductible |
Entertainment: The Expense That Catches People Out
This is where most agency owners get it wrong. Client entertainment and staff entertainment are treated completely differently by HMRC.
Client Entertainment - NOT Deductible
- Taking clients to restaurants
- Event tickets for clients
- Drinks or hospitality for prospects
- Any entertainment where clients attend
You can still pay for it through the company, but it won't reduce your Corporation Tax bill
Staff Entertainment - Deductible
- Christmas party (up to £150/head)
- Summer team event (up to £150/head)
- Team meals (if open to all staff)
- Away days and team-building events
Must be annual event(s), open to ALL employees, and within £150/head including VAT
The £150 Cliff Edge
The £150 per head staff entertainment allowance is a hard limit, not a threshold. If your Christmas party costs £151 per person, the entire amount becomes a taxable benefit - not just the £1 over. Include everything: venue, food, drinks, entertainment, transport, and accommodation. Keep it at £150 or under, and you pay nothing extra.
Marketing and Advertising
Everything you spend to win new business and promote your agency is deductible.
| Expense | Deductible? | Notes |
|---|---|---|
| Website and hosting | Yes | Domain, hosting, development costs |
| Google Ads, Meta Ads | Yes | Your own ad spend (not client passthrough) |
| SEO tools | Yes | Ahrefs, SEMrush, Screaming Frog |
| Business cards and print | Yes | Brochures, flyers, branded materials |
| PR and content | Yes | Copywriting, photography, video production |
| Conference sponsorship | Yes | Stand costs, sponsorship fees, exhibition materials |
| Business gifts | Partly | Up to £50/person/year, must display your logo |
Professional Services and Insurance
The fees you pay to run your company properly are all deductible. Don't forget them.
Professional Fees
- Accountancy and bookkeeping fees
- Legal and solicitor fees
- Tax advisory fees
- IT support and managed services
- Professional body memberships (HMRC approved list)
- Companies House annual return fee
Business Insurance
- Professional indemnity insurance
- Public liability insurance
- Employers' liability insurance (legal requirement)
- Business contents insurance
- Cyber liability insurance
- Key person insurance
Finance and Banking
| Expense | Deductible? | Notes |
|---|---|---|
| Business bank fees | Yes | Monthly fees, transaction charges |
| Business loan interest | Yes | Interest only, not capital repayments |
| Credit card fees | Yes | Annual fees and interest on business cards |
| Payment processing fees | Yes | Stripe, GoCardless, PayPal fees |
| Bad debts | Yes | Invoices you genuinely cannot collect (accruals basis) |
| Currency exchange losses | Yes | If you invoice in foreign currencies |
7 Expense Mistakes Agency Owners Make
1. Claiming client entertainment
It feels like a business expense. It is a business expense. But HMRC says no. Client meals, tickets, and hospitality are not deductible. Track them separately in your accounts so they don't accidentally end up in your Corporation Tax return.
2. Not claiming home office costs
At minimum, claim the £6/week flat rate. It's free money with zero admin. Better still, calculate your actual costs. Most home-working agency owners can claim £1,000-2,000+ per year this way.
3. Mixing mileage and actual vehicle costs
You cannot claim mileage AND fuel, insurance, and repairs. Pick one method and stick with it. For most agency owners using their personal car, the mileage rate is simpler and often more generous.
4. Forgetting to keep receipts
No receipt means no proof. HMRC requires records for six years. Use an app like Dext, Hubdoc, or even your phone camera to capture receipts the same day. Digital records are perfectly acceptable.
5. Missing the £150 staff party limit
Going £1 over the £150/head limit means the entire cost becomes taxable. Plan your events with this number firmly in mind. Include transport and any extras in your calculation.
6. Claiming personal items through the company
Putting personal purchases through the business creates a director's loan. If not repaid within 9 months of your year end, the company pays 35.75% Section 455 tax. Read our director's loan guide for the full picture.
7. Not claiming pension contributions
Employer pension contributions are one of the most tax-efficient expenses available. No Corporation Tax, no NI, no income tax at the point of contribution. Up to £60,000 per year. Read our pension contributions guide for the full breakdown.
Record Keeping Requirements
HMRC can open an enquiry into your company's accounts and ask to see evidence for every expense you've claimed. Good records protect you.
What HMRC Expects You to Keep
- All purchase invoices and receipts
- Bank statements (all business accounts)
- Mileage logs with dates and purposes
- Contracts with freelancers and suppliers
- VAT receipts (supplier name, VAT number, date)
- Payroll records and P60s
Keep everything for 6 years from the end of the financial year it relates to.
Capital Allowances: Equipment and Machinery
When you buy equipment (as opposed to subscribing to software), you claim the cost through capital allowances rather than as a day-to-day expense. The result is the same - a reduction in your tax bill - but the mechanism is different.
| Allowance | Rate | What It Covers |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% up to £1m | Full deduction in year of purchase for plant and machinery |
| Writing Down Allowance (main rate) | 14% per year | Reduced from 18% in April 2026. For spend above AIA limit |
| First Year Allowance (new) | 40% | New from January 2026 for qualifying new plant and machinery |
| Full Expensing | 100% | For companies only, on qualifying new assets |
For most agencies, the £1m AIA limit is more than enough. If you buy a new MacBook Pro for £3,000, you deduct the full £3,000 from your taxable profits in the year of purchase. At 25% Corporation Tax, that's a £750 tax saving.
The writing down allowance on the main pool dropped from 18% to 14% from 1 April 2026, slowing the rate at which older pool balances are written down. If you have assets in your main pool from earlier years, see our guide to the writing down allowance 14% change to understand how the hybrid rate calculation and the new 40% first-year allowance affect your position.
What You Definitely Cannot Claim
Non-Deductible Expenses
- Client entertainment - meals, events, hospitality
- Fines and penalties - parking fines, HMRC penalties, speeding tickets
- Personal clothing - suits, shoes, general office wear
- Dividends - these are profit distributions, not expenses
- Commuting costs - home to permanent workplace
- Capital repayments - only the interest on loans is deductible
- Personal expenses - anything not wholly for business
- Political donations - not deductible for Corporation Tax
Trivial Benefits: The Small Perk That Adds Up
Your company can give you (and your employees) small tax-free benefits as long as each one costs £50 or less. For directors of close companies, there's an annual cap of £300.
Qualifying Trivial Benefits
- Birthday or seasonal gift cards (not cash)
- Flowers or a bottle of wine
- Occasional meals or takeaway
- Small gifts for work milestones
- Cinema or event tickets
- Hampers or food gifts
As a sole director, that's up to £300/year in tax-free benefits. A small saving, but it adds up over time.
Agency-Specific Expenses Most Owners Forget
Beyond the standard categories, there are expenses specific to running an agency that often get overlooked.
Client Media Spend (Passthrough)
If your agency pays for client ad spend (Google Ads, Meta Ads) and recharges it, this flows through your P&L. It's deductible as a cost of sale, but make sure you're tracking it separately from your own marketing spend. It inflates your revenue and expenses equally.
Stock Photography and Assets
Shutterstock, Getty Images, Adobe Stock, font licences, icon packs, video footage. If you buy assets for client projects, they're deductible. Annual subscriptions to stock libraries are ongoing expenses.
Award Entry Fees
Entering industry awards (Drum Awards, Campaign, Design Week) is a marketing expense. The entry fees, any associated presentation costs, and attendance at ceremonies are all deductible.
R&D Tax Credits
If your agency builds custom software, develops proprietary tools, or solves technical challenges for clients, you may qualify for R&D tax credits. This is separate from regular expenses and can provide additional Corporation Tax relief or a cash credit.
Eye Tests and DSE Assessments
If your employees use display screen equipment (they do), you're legally required to offer eye tests and, if needed, contribute to the cost of glasses prescribed for VDU use. These costs are deductible and exempt from benefit-in-kind tax.
Frequently Asked Questions
What is the "wholly and exclusively" rule for limited company expenses?
HMRC requires that expenses are incurred wholly and exclusively for business purposes. If an expense has a dual purpose (part business, part personal), it fails the test and cannot be claimed. For example, a laptop used only for client work qualifies. A laptop split between work and personal use does not, unless you can clearly separate the business portion.
Can I claim client entertainment as a business expense?
No. Client entertainment is not a tax-deductible expense, regardless of how business-related it feels. Taking a client to dinner, buying them tickets to an event, or hosting a client drinks evening cannot be deducted from your Corporation Tax bill. However, you can still pay for it through the company and reclaim VAT in some cases. Staff entertainment (like a Christmas party) is treated differently and can be deductible.
How much can I claim for working from home through my limited company?
Your company can pay you £6 per week (£26 per month, £312 per year) tax-free as a flat-rate home office allowance with no receipts required. Alternatively, you can claim a proportion of actual household costs (rent, utilities, council tax, broadband) based on the percentage of your home used for business. The actual costs method usually saves more but requires records.
What are the HMRC mileage rates for 2026/27?
Cars and vans: 45p per mile for the first 10,000 business miles, then 25p per mile after that. Motorcycles: 24p per mile. Bicycles: 20p per mile. These rates have not changed since 2011. If you carry a colleague on a business trip, you can claim an extra 5p per mile. Mileage covers all vehicle running costs, so you cannot also claim fuel, insurance, or servicing separately.
Can I claim for software subscriptions like Adobe, Figma, and Slack?
Yes. Software subscriptions used for business purposes are fully deductible. This includes design tools (Adobe Creative Cloud, Figma, Canva), project management (Asana, Monday, Notion), communication (Slack, Zoom, Teams), accounting (Xero, QuickBooks), and any other SaaS products your agency uses. Keep the invoices and make sure the subscription is in the company name.
Are freelancer and contractor payments tax-deductible?
Yes. Payments to freelancers, contractors, and subcontractors for business work are fully deductible against Corporation Tax. This is usually one of the largest expense categories for agencies. Keep invoices, contracts, and proof of payment. If you are paying a contractor, make sure you have considered IR35 status as this affects how you account for the cost.
What is the trivial benefits limit for directors?
A trivial benefit must cost £50 or less per individual benefit. For directors of close companies (five or fewer shareholders), there is an annual cap of £300. The benefit cannot be cash or a cash voucher, must not be a reward for work, and cannot be part of a contractual arrangement. Examples include birthday gifts, occasional meals, or small gift cards.
How long do I need to keep expense receipts?
HMRC requires you to keep business records and receipts for at least six years from the end of the last financial year they relate to. For example, records from the year ending March 2027 must be kept until at least March 2033. Digital copies (scans, photos) are acceptable as long as they are legible and include all the required information.
Can I claim the cost of business clothing?
Only if the clothing is a uniform with your company logo, protective clothing required for the job, or a costume for a specific role. Ordinary business wear (suits, smart shoes, general office clothing) is not deductible, even if you only wear it for work. HMRC considers that ordinary clothing has a dual purpose.
What is the Annual Investment Allowance and how does it work?
The Annual Investment Allowance (AIA) lets you deduct the full cost of qualifying plant and machinery purchases from your taxable profit, up to £1 million per year. This includes office equipment, computers, furniture, and machinery. If you spend more than £1 million, the excess is claimed through Writing Down Allowances at 14% per year (reduced from 18% in April 2026).
Can my company pay for my professional subscriptions?
Yes, if the professional body is on the HMRC approved list and the membership is relevant to your business. ACCA, CIMA, ICAEW, and most professional accounting and marketing bodies qualify. Industry memberships like the DMA (Data and Marketing Association) or IPA (Institute of Practitioners in Advertising) are also deductible.
Are training and course fees tax-deductible?
Yes, training that maintains or updates existing skills for your current business is deductible. This includes courses, conferences, workshops, and online learning subscriptions. However, HMRC may challenge training that gives you entirely new skills unrelated to your business. A marketing agency owner doing an advanced Google Ads course is fine. The same owner doing a plumbing qualification would not qualify.
Related Guides
Use our Director Salary Calculator to find the most tax-efficient way to pay yourself, factoring in your expenses.
Read our guide to how to pay yourself from a limited company for the full picture on salary, dividends, pensions, and expenses combined.
Related Tax Planning Guides
- How to Pay Yourself from a Limited Company . All five methods compared
- Pension Contributions for Directors . The most tax-efficient extraction method
- Optimal Director Salary 2026/27 . Find the right salary/dividend split
- Director's Loan Account Guide . Avoid the 35.75% Section 455 tax trap
- UK Dividend Tax Increase 2026 . How the rate change affects your take-home