Beyond the Obvious: Costs Your Limited Company Can Legitimately Cover

Most limited company directors are familiar with the everyday deductions. Accountancy fees, software subscriptions, business travel and office equipment rarely cause anyone to raise an eyebrow. What tends to surprise directors is the range of other costs a company can legitimately pay for, or reimburse, without automatically triggering the tax charge you might assume comes attached.

The detail is what separates a legitimate expense from an expensive mistake. Money leaving the company bank account does not, in itself, make a cost tax deductible, and several of the exemptions below come with precise conditions that determine whether they apply at all. Some of these overlaps between personal benefit and business cost are also relevant to contractors weighing up different working arrangements, and anyone trying to make sense of how umbrella and inside-IR35 rates actually work will recognise how much the fine print matters. For directors who also want to protect the income their company depends on, providers such as Income Protection Help sit alongside these arrangements as another option worth understanding.

Here are seven areas that are easy to overlook.

Your Mobile Phone, Private Calls Included

A limited company can provide a director or employee with one mobile phone or SIM card without creating a taxable benefit, as long as the contract sits between the company and the supplier. There is no need to separate business calls from personal ones. The exemption can stretch to cover the handset, the line rental and the cost of personal use.

The deciding factor is ownership of the contract. Where the phone is in your own name and the company simply settles the monthly bill, the exemption does not apply in the same way, and a second company-provided phone can also fall outside it. This is a distinction that catches a surprising number of owner-managed companies out. For businesses with staff as well as directors, there is a broader case for treating a company-funded handset as a low-cost employee perk rather than an individual expense claim. In practice, many directors find the exemption works most cleanly when a new contract is arranged in the company's name from the outset, though the right approach depends on individual circumstances.

The official position is set out in HMRC's guidance on exemptions for company mobile phones.

Small Gifts to Yourself

This is one of the more unusual exemptions open to directors. Under the trivial benefits rules, a company can provide a benefit costing £50 or less, including VAT, without Income Tax or National Insurance becoming due. The benefit cannot be cash or a cash voucher, cannot be a reward for work, and cannot be something you are contractually entitled to receive.

Directors of close companies, which covers most small owner-managed limited companies, face an additional annual cap of £300. It is worth being clear about how that £300 operates. It is a limit on the qualifying trivial benefits provided to the director themselves across the tax year. Where family or household members are also directors or employees of the company, they each have their own separate £300 annual cap for benefits provided to them, so the figure is not a single shared pot for the whole household.

The practical upshot is that a company might buy a £40 bottle of wine, a restaurant voucher or another non-cash gift with no strings attached. What it cannot do is dress the same gift up as a bonus for finishing a project or hitting a target, because that immediately fails the conditions. There is also no partial relief. A benefit costing £51 does not qualify at all, and you cannot simply claim the first £50 of it.

The Annual Party, Even for a Company of One or Two

The annual staff event exemption is not reserved for businesses with large workforces. A small limited company can potentially cover an annual Christmas party, summer function or similar event without creating a benefit-in-kind charge, provided the event is annual in nature, open to all employees or all employees at a particular location, and the cost comes in at £150 or less per head.

That per-head figure includes VAT along with associated costs such as transport and accommodation, and any guests attending are counted when working out the cost per person. The £150 is an exemption rather than an allowance, which has an important consequence. If an event tips over the threshold, the entire cost can become taxable rather than just the excess above £150. A detailed look at how the £150 per head exemption is calculated shows why keeping a running total matters.

Companies can also hold more than one annual event, as long as the combined cost of the functions being treated as exempt stays within the £150 per head figure. For a husband-and-wife company where both spouses are on the payroll, this is precisely the sort of expense that slips through unnoticed.

Eye Tests, and Sometimes Glasses

If your working day is spent looking at a screen, your company may be able to meet the cost of an eyesight test without creating a taxable benefit. The exemption applies to qualifying eye tests for employees who habitually use display screen equipment, and it can extend to glasses or contact lenses where they are specifically required for screen work.

That specificity is the catch. You cannot route an ordinary pair of everyday designer glasses through the company on the basis that you occasionally wear them at your desk. The corrective appliance has to be required for display-screen use.

There was also a helpful change from 6 April 2026. Before that date, the exemption generally depended on the employer providing the qualifying eye test or corrective appliance directly. Since 6 April 2026, it has been extended so that employers can also reimburse employees for qualifying eye tests and special corrective appliances. That is particularly convenient for directors of small companies who tend to book and pay for the appointment themselves and then square it up with the business afterwards.

Training That Sharpens the Skills You Already Use

Training is an area where directors are sometimes more cautious than they need to be. A company can normally pay for work-related training that improves or develops skills relevant to your current role, or to a related role you are likely to take on for the company. That might mean technical training, professional courses, management or leadership development, or training in software you actually use in the business.

The exemption can also reach associated costs, including course materials, examination fees and qualifying travel and subsistence. What holds it together is the connection to your work. Paying through the company for an unrelated course pursued mainly as a hobby, or as a stepping stone into an entirely different career, falls outside the exemption and would be treated very differently.

Pension Contributions Paid Directly by the Company

Plenty of directors know they can pay into a pension personally, but company contributions carry their own advantages. An employer contribution paid by the company into a director's registered pension scheme will normally be deductible when calculating company profits, provided it is incurred wholly and exclusively for the purposes of the trade.

Unlike a personal contribution, the money goes straight from the company into the pension rather than having to be drawn out first as salary or dividends and taxed along the way. Employer pension contributions are also not normally treated as a benefit in kind.

The pension tax rules still apply, including the annual allowance and, in some cases, the ability to carry forward unused allowance from earlier years. Care is sensible with very large one-off contributions, particularly where the amount looks out of step with the director's duties or overall remuneration. Corporation Tax relief is generally given for the accounting period in which the contribution is actually paid, so timing can matter around a year end.

Income Protection for a Company Director

Income protection is another cost many directors assume they have to arrange and fund personally, which is not necessarily the case. A limited company can arrange an executive income protection policy for a director or employee. Rather than the individual paying premiums from post-tax income, the company takes out the policy and pays the premiums itself.

The idea is straightforward. If illness or injury keeps the insured person off work for an extended period, the policy can provide the company with a regular benefit, which the company can then use to keep paying the director or employee, subject to the policy terms and the usual payroll and tax treatment of any amounts paid across. For owner-managed businesses where personal income leans heavily on the director's ability to keep working, a lengthy absence can hit the individual and the company's ability to generate revenue at the same time.

The tax treatment differs from simply buying a personal policy and settling the premiums from the company account. The cover needs to be structured correctly as employer-provided, and the precise treatment depends on how the arrangement is set up. Directors tend to insure their homes, cars and business assets while overlooking the income that underpins all of them, so it is worth being clear about the difference between a personal policy funded from taxed income and a policy designed from the outset to be arranged and paid for by a limited company.

Personal Does Not Automatically Mean Disallowed

A common thread runs through most of these rules. A limited company is an employer as well as a business, so some spending that benefits you personally can still fall within specific employee tax exemptions or legitimate employer-provided arrangements. That is not a licence to push anything vaguely work-adjacent through the company. The sensible approach is to keep genuine business expenditure, exempt employee benefits and ordinary personal spending clearly separate in your own mind.

Small details do most of the heavy lifting here. Whether the mobile contract is in the company's name, whether a gift was tied to performance, whether a staff event was genuinely open to everyone, and whether an insurance policy was structured as employer-provided cover can each flip the tax outcome entirely. Where the position is not obvious, checking the precise conditions or speaking to your accountant before the money moves is usually cheaper than unpicking it afterwards.