How to organise your Limited Company costs and expenses

If you operate your business through a Limited Company it’s essential that your mindset shifts to thinking of the company as something completely separate to you; it is a separate legal entity recognised in law.

In reality this means that you must not treat the Limited Company’s money or its bank account as your own; so you need to get organised. Here’s how ….

Business bank account

You must keep a separate business bank account for the company, because it is a separate legal entity; although there is no law which actually mandates this.

Generally you will need to visit a bank to set up a business bank account taking with you the incorporation documentation for the company as well as your personal proof of identification. This is due to the very strict Anti Money Laundering regulations in place in the UK.

An alternative to this bureaucracy is to use one of the new (and safe) Challenger Banks such as Coconut, Tide, Starling or Counting Up which allow you to set up completely online without any need to visit a physical bank.

Overseas residents can struggle to get a UK business bank account set up as do those with a poor credit rating.

Although the business is unlikely to earn much in the way of interest, it is advisable and good housekeeping to set up a separate deposit account to put aside money for VAT and Corporation Tax.

Business and private – keep it separate

Don’t mix private and business expenditure. Your bookkeeping will be quicker and easier if you only put business transactions through your business account and pay for your personal expenditure out of your own separate personal bank account.

In fact, paying private costs out of the business can create serious tax problems and should be avoided.

Don’t be tempted to pay for non-business things out of the business just because that is where the money is and it is convenient. If the funds in your personal bank accounts are low then you should withdraw available profits from the business by way of a salary or dividend following the tax planning strategy set for your business as agreed by you with your accountant.

Business expenses paid for privately

If you do pay for business expenses and costs out of your own funds, such as on your credit card, from cash or through your personal bank account then, of course, you are entitled to reclaim these back from the business.

You can try to avoid this as much as possible by using a debit card on your business account. Again this is best practice and something you should try to get into the habit of doing.

Where paying for costs from your personal funds is unavoidable then you should take an approach similar to that of claiming expenses from an employer.

Detail the costs that you have incurred on behalf of the business (known as an expenses claim) in an excel sheet, on a sheet of paper or use an expenses App.

You can claim for mileage where you’ve used your car for a business journey remembering to claim 45p for the first 10,000 miles and 25p a mile thereafter.

Remember to attach your supporting receipts to the expenses claim or take a photo of them in your expenses App. You will need to keep these as part of your accounting records.

Finally transfer the total of the expenses claim from the company bank account to your own bank account (also known as reimbursing your expenses).

Try to get into the habit of doing an expenses claim once a month. This will help avoid forgetting to claim any costs and missing out on claiming a legitimate expense against tax.

Personal credit card used for business expenses

You can claim any costs or expenses incurred on your private credit card in the same way as other out of pocket expenses via the Expenses Claim Form. Of course best practice would be to get a credit card in the name of the limited company or, failing that, use a personal one solely for business use so that personal and business costs are not mixed up.

Costs that are business and private

Sometimes costs incurred can have a business and private part to them such as broadband if you work from home. You can claim the business portion of the costs back via the expenses claim form using a sensible method of assessing how much of the cost is actually for business; think of sensible as being a method that you could explain and justify to HMRC if they were to query the amount claimed.