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this is a UK-based question.

I understand that there are certain purchases that you can make using the revenue of your limited liability company, and this is beneficial as you are using money that has not been taxed by corporation tax.

However, after my company (of which I am the sole director and sole employee) has paid it's corporation tax bill, can my company use this 'after-tax' money to purchase anything 'it' wants. For example, could my company buy a new jacket, a new pair of shoes, a few things off Amazon etc, or are there restrictions on this? I imagine that if it is possible, then these are just technically assets of the company? Or perhaps you can only buy things with company profits that are related to business activity?

I apologise for the ignorant (and probably slightly comical) question, but I am well aware that money in my business bank account, before and after corporation tax, has much more purchasing power than when it is sent to my personal account because of income tax. Thus, I am trying to be as financially efficient as possible.

Thanks in advance!

EDIT

I chose @TomTom's answer as the correct answer because the other answers seem to misunderstand what a 'grey area' is, and are not familiar with the difference between breaking the law and financial efficiency. There's a reason why the poor and the middle class pay more tax than the super rich, and if you are reading this and don't know why, I urge you to look it up. I will be speaking to my accountant to develop the ideas here given by TomTom. Thanks again!

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    I admire your "I selected this answer because it's what I wanted to hear" attitude. I hope your tax auditor has the same point of view.
    – Xerxes
    Jan 22, 2021 at 15:10
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    Remember before speaking to accountant that your conversations with them aren't privileged and they are obligated by law to report you to the police if they suspect that you're evading taxes.
    – Ross Ridge
    Jan 22, 2021 at 21:50
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    There is a meta discussion about this question.
    – Ben Miller
    Jan 23, 2021 at 2:57
  • @pho_pho There is no 'grey area financial efficiency wink wink nudge nudge' about deductibility of clothes in the UK. It is disallowed: oneaccounting.co.uk/resources/…
    – Grade 'Eh' Bacon
    Feb 4, 2021 at 19:04
  • You are most likely to create a "benefit in kind" tax liabilty in UK tax law.
    – PeterI
    Jul 30, 2021 at 10:26

8 Answers 8

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Yes, it could - it could not deduct them from taxes, and THEY WOULD BE OWNED BY THE COMPANY, but there are very valid cases for all your examples:

a new jacket, a new pair of shoes,

Yes, because the company can buy clothes for representation. Tax deductibility is disputable (not a UK specialist).

Or perhaps you can only buy things with company profits that are related to business activity?

The problem here is what related means. XBox? Well, I take breaks, it is in the break room, as is the cappuccino machine.

This is a BRUTALLY large grey area, if you are smart - the government may not like it, and a lot depends on what your company does and whether you can make a point that it is business related. In which case you can likely buy it with PRE TAX MONEY actually.

And yes, there are ways - depending on your business - to run a LOT through pre tax money. Why do you think some doctors love to go on holidays (ah, sorry, medical presentations)? A lot depends on your exact business (including size), though. The government MAY fight it - and you MAY get away with a lot more than people here think. But you need to keep your paperwork proper and I seriously ask NOT TO ASK HERE - but take a good accountant and discuss that with you. A good accountant may be able to talk with you how to - not really willing to give examples. Really depends on your company turnover and exact business, i.e. we have clients in some VERY nice locations. And they regularly ask me to visit them for discussions. Which totally makes sense given the nature of our business deals.

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No.

Purchases for your company are intended to be for your company to perform its function: merchandise that the company sells, equipment that the company needs to function...

Purchases for companies are taxed considerably lower than purchases for people. Your company purchases will be VAT free (you pay it when buying anything, but you get reimbursed for it at a later date) and its cost will mean less profits, so less taxes on profits. That means a loss of revenue for the Exchequer when compared to you buying directly your personal use goods, and you can be required to explain those purchases and be charged with fraud if you fail to satisfactory explain them.

Otherwise, everybody would be setting companies and using those to buy everything.

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    Sorry, this is fundamentally ignorant to the fact that there is a SERIOUSLY big grey area, particularly if you get into successful companies. I know a guy that loves cars - and his Ferrari runs on the company. Sometimes he slaps a magnetic company logo on it on events -> marketing expense. Not driving a ferrari, but all my cars are running on the company. I know a guy organizing client retreats once per year. Invites his clients, and spends his holidays on company costs. "equipment that the company needs to function" is a BRUTALLY grey area, unless your company is a local bakery.
    – TomTom
    Jan 22, 2021 at 2:35
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    @TomTom No, it is not a grey area. If that guy can convince the tax men and/or the judge that the car is a business expense, then he can get away with it. If he cannot, he is guilty of tax fraud. That some people can get away by bending the rules does not mean that the rules do not exist.
    – SJuan76
    Jan 22, 2021 at 3:43
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    " If he cannot, he is guilty of tax fraud. " no, not necessarily. Tax FRAUD includes intent - a bad business decision may mean it is a taxable, but HE is not liable for fraud if a chartered accountant signed off on it. Arm's length defense - "I asked a professional for clarification". And if you do not "bend the rules" imho that makes you an idiot. There is a line not to cross, but getting what you can in exempts is smart, not criminal.
    – TomTom
    Jan 22, 2021 at 10:24
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    "Taking advantage" is another way of saying "stealing from the government". It may not be legally wrong, but you and your accountant and the government all know it's theft. This sort of "death by a thousand cuts" is how the wealthy are able to avoid paying their fair share, which is why tax revenue goes down, which harms the most vulnerable people who depend on the government. The fact that you are happy to advertise - on a public forum - that you are guilty of this, disgusts me.
    – Ian Kemp
    Jan 22, 2021 at 10:55
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    @tomTom It being "quite hard to make the argument it was a honest mistake" doesn't mean it wasn't fraud, just that it's not possible to prove it's fraud. In just the same way it is as difficult to prove it was intentional my zip scratched your car as I walked past it. difficult to prove was intentional, so I pay for the accidental damage if I'm caught.
    – JCRM
    Jan 22, 2021 at 11:41
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Unfortunately, there are a lot of wrong answers here. The correct answer is that there is no reason why your company cannot buy something and give it to you. However, this is then "benefit in kind" to you and you must report it in your personal tax return and pay tax as if you have been given its value in cash.

In most cases this means that there is no tax difference between your company providing something to you and your company giving you money to buy it yourself. There are a few exceptions - as Mike Scott says, there are some types of clothing which can be supplied tax free (including, for example, PPE like work boots which become your property but you are not liable for tax on), and food (provided it is equally available to all employees). Consult a tax adviser before relying on any exceptions as there are penalties for getting it wrong and reading about stuff on the Internet is not a valid excuse.

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Dislaimer: I'm in Belgium but from the answers already posted I think some ideas might still be relevant to UK.

First things first, TomTom is very right to advise you to discuss that with your accountant. They can probably better than anybody here advise you on things to do, things to avoid doing, etc... How you choose your accountant will also probably depend on the approach you want to have, from playing strictly by the rules to basically trying to buy everything you buy through company money. I think you shouldn't overlook the importance of having a good relationship with your accountant, having them respect your approach and guiding you with it.

Now, to extend a bit on "how can I turn more company money into personal advantages?", because that's a question I've been asking me in the past 2 years, here are a few examples which may or may not be relevant for you (depending your kind of business, I'm in IT) or for UK, but are I think worth exploring. Please note I'm only mentioning things I have been doing or have seen other freelance friends do without any issue. I can not guarantee how legal this may be at a given time in a given place, but they seem to me to be in some kind of grey zone.

Hardware

Every IT/Multimedia hardware or office material you can think of : Nice desk, nice office chair, top notch computer, printer, smartphone, headphones, network material... Then maybe your meeting room needs a big screen? Or a big table and some chairs? If this meeting room is your living room, this can be convenient... Now there's no meeting without coffee, so you need a coffee machine. And the coffee machine needs coffee, so your company also have to buy coffee.

Software

You can finally legally use this expensive software, reward the developers of that freeware you've been using for years, go "premium" on these cloud services you're using,...

Real estate

Your company could be investing in real estate, buying a house on the seaside for example (or in a foreign country), for it to be rented during the year, and your country house whenever you feel like it. (note: in Belgium doing so is considered a "personal advantage" which is taxed later on). Additionally, your company may simply be paying you (as an individual) a rent for the office space located in your house. Some go up to the extent where your company is actually buying your house, but I'm not a big fan of that approach...

Car

This may well be a very Belgian thing because company cars are a huge thing here, but my (self-owned) company owns my car and pays for any expense related to it (including insurance and fuel). Here also it is considered a "personal advantage" so I'm personally taxed on it as it was part of the salary, but it's nowhere near the cost of the car.

Insurances

My company pays a top notch health insurance for my whole close family. Besides this, I also have some insurance so that if let's say I fall and break both my arms so I can not work, I have a guaranteed income up to several years in the future. Linked to that I have a life insurance/pension plan so that if I die tomorrow the future of my family should be OK financially speaking, and if I happen to live until retirement I'll get additional money on top of "normal" (state issued) retirement money.

Travel

At some point, we may be authorized to travel again... you can probably be creative a bit on that. Attending a conference in San Francisco or simply Amsterdam or Paris can have some side advantages while still being professionally justified. If your company can afford it you can also maybe upgrade your travel experience, going business class instead of eco.

Donations

Maybe you're already, as an individual, helping one or another charity, you can probably help even more with company money. Donations are commonly tax-exempt.

Clothes

I mention it because you do so in your question, but not being much into fashion myself, and usually working in very casual environments, this is such a small budget I don't even want to try putting this on my company. Still it may be possible depending on your kind of business to buy nice suits or shoes or a part of your more casual workwear through your company.

Gifts

It's common practice for companies to offer gifts to associates, clients or prospects. This can include chocolates, champagne, food baskets, retailer gift cards,... whether all of this is actually (fully or partially) given to clients and prospects, and how much of the "leftovers" you actually use for your own benefits is hard to control.

Intellectual rights

Once again maybe a very Belgian thing, but it happens that here the income you get from selling such rights is much less taxed than your salary income. Hence you can "sell" the rights on my intellectual property (a percentage of my company's yearly income) to your company, get that money on your private account, but pay much less taxes on it than if you got the same amount as a salary.

Whatever you do I think the key is to be reasonable, trying to stay below the radar, following the advise of your accountant. At least it's an approach that seems to be working for me.

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I don't think this is the best way to approach this problem for reasons mentioned by others - the assets would legally belong to the company so it becomes a bit of a grey area.

However, there is one way you can leverage the company to your benefit: DIVIDENDS.

Currently, you can earn up to £2000 in dividends tax-free (source). For any amount up from there, you are taxed at a much lower rate than you would be if this was paid as income. For example, basic rate income tax is 20% whereas basic rate dividend tax is 7.5%.

The UK Government website gives this example:

Example

You get £3,000 in dividends and earn £29,500 in wages in the 2020 to 2021 tax year.

This gives you a total income of £32,500.

You have a Personal Allowance of £12,500. Take this off your total income to leave a taxable income of £20,000.

This is in the basic rate tax band, so you would pay:

  • 20% tax on £17,000 of wages
  • no tax on £2,000 of dividends, because of the dividend allowance
  • 7.5% tax on £1,000 of dividends

Anything bought with money obtained by paying yourself dividends from the company you are a director of belongs to you, as it was bought with your money.

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  • The UK government blocked the use of dividends for certain classes of employment years back: IIRC, around 2005 they applied initially to contractors in the IT field, but they now apply to "Personal Services Companies" and affect (e.g.) newsreaders who subcontract to the BBC via their own companies. The legislation is known as IR35 and there is a new (stricter) round of exclusions starting in April 2021.
    – Paul_Pedant
    Jan 22, 2021 at 15:19
  • @Paul_Pedant do you have a source for that please? I'm not generally familiar with IR35 but from what I've heard I was under the impression it was more to do with workers that set up their own company to contract with 1 employer instead of being employed directly, thus enabling the employer to pay less NI etc - happy to be corrected and learn something new though!
    – Luke
    Jan 22, 2021 at 15:24
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    See www.itcontracting.com/history-of-ir35. Sole traders pay lower NI under a different scheme. I was director of my own IT Limited company (registered with Companies house in Scotland) since 1987, paying myself as a full employee including PAYE, and both employers and employees NIC, public liability insurance, and pension fund, plus the obligation to file audited annual accounts. Any excess income could be paid as dividends to shareholders up to year 2000, when essentially the rules for limited companies were overturned for one sector only.
    – Paul_Pedant
    Jan 22, 2021 at 18:05
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In general, your company can pay for things for you without it counting as your income only if the only purpose is a business one.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37100

The important point is not what the money was spent on but the payer’s purpose in spending the money.

A couple of answers, and the question itself as edited, suggest that it's a grey area and you can often come up with a business purpose when the actual goal is a personal one. There may well be cases where you can get away with it because no-one can prove otherwise, but it's still tax fraud and illegal.

There are plenty of examples in the internal manual linked above:

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You can buy clothes through your company if they’re work clothes with your company’s logo on them — safety gear, a uniform, and so on — but not if they’re ordinary clothes that you might reasonably wear when not working.

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  • As I understand it, whether you "might reasonably" wear them when not working is irrelevant, but whether they were bought and used specifically for a business reason. (If they might reasonably have a non-business use, however, you would need to be more careful about documenting the legitimate business reason, in case challenged...)
    – Steve
    Jan 22, 2021 at 10:14
  • You can buy more "normal" clothes on the company if you need those clothes because of the work you do. My sister is a corporate lawyer. She can claim one new suit/outfit a year on the company, because she regularly needs to be formally dressed for work.
    – Graham
    Jan 22, 2021 at 20:02
  • @Graham "On the company" doesn't mean "tax deductible". It means her company pays for it. Perhaps it is included as a taxable benefit in calculating her income, or perhaps the company forgoes the deduction, or something similar, but you are conflating 2 different concepts.
    – Grade 'Eh' Bacon
    Feb 4, 2021 at 19:07
  • @GradeEhBacon Her company pays for it. Really, it is that simple and I'm not conflating them.
    – Graham
    Feb 4, 2021 at 19:30
  • @graham That's what I mean - her company paying for it, doesn't mean there is a tax advantage to doing so. Perhaps they pay the tax implications on her behalf, or perhaps they add an income attribution on her payslip that she is unaware of [which I understand may be somewhat common in the UK where tax filings are prepopulated and don't always get scrutinized sufficiently before paying], or something else of that nature. The fact that her company pays for it does not necessarily mean there is an overall tax benefit to doing so.
    – Grade 'Eh' Bacon
    Feb 5, 2021 at 16:32
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There is a difference and it is mainly in the case of the tax that you have to pay. Maybe the things that you buy for your company will have some exceptions in tax ( Depending on the kinds of stuff that you buy) For example in the case of reclaiming VAT, As a business person, it is possible for you to reclaim the VAT paid on goods and services purchased for use in your business or for your company while if the purchase has been done for personal or private use, one can only reclaim the business proportion of the VAT.( Value Added Tax Act-1994, UK)

In short, it is legally advised to buy products separately for your business and for private use separately.

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