When managing your company finances, understanding allowable and disallowable expenses under HMRC tax rules is crucial. One common question directors face is whether food and travel expenses—which aren’t allowable for tax deduction—should be booked as an expense and later added back in the tax return, or whether they must go into the Director’s Loan Account (DLA).
This blog will clear up the confusion and help you navigate business expenses, personal benefit implications, and Director’s Loan Account tax treatment with ease.
What Are Allowable and Disallowable Expenses?
Under HMRC rules, business expenses must be incurred wholly and exclusively for trade purposes to be allowable for tax deductions.
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Allowable expenses reduce taxable profits and include costs like office rent, salaries, and business-related travel.
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Disallowable expenses must be added back to profits in the tax return and include costs with a personal element, such as client entertainment and non-business-related meals.
Food and Travel Expenses: Should They Go to the DLA?
The key distinction lies in who benefits from the expense.
✅ Scenarios Where Travel & Food Are Allowable (Deductible for Tax)
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Business trips: Travel and meals during out-of-town business trips.
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Client meetings abroad: If meeting a client outside the usual workplace for a business purpose.
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Subsistence costs while working away: If staying overnight on business.
❌ Scenarios Where Food & Travel Are Disallowable (Non-Deductible for Tax)
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Commuting to and from work: Travel to your usual workplace is classed as personal and non-allowable.
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Buying lunch at the usual office: Personal benefit as it would be an everyday cost if you weren’t a director.
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Taking a client to dinner: This is classified as business entertainment, which HMRC disallows for tax purposes.
For disallowable business expenses, you have two options:
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Record as an expense and add back in tax return (If company-related but fails HMRC's "wholly and exclusively" test).
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Post to the Director’s Loan Account (DLA) if the director personally benefits (e.g., private travel, meals unrelated to business).
Personal Benefit vs. Non-Business Expenses: Key Differences
Many confuse "personal benefit" with "non-business expenses," but they are not always the same.
| Expense Type | Personal Benefit? | Non-Business Expense? | Allowable for Tax? | Treatment |
|---|---|---|---|---|
| Business-related travel & meals | ❌ No | ❌ No | ✅ Yes | Deductible Expense |
| Taking a client for a meal | ❌ No | ✅ Yes (Business entertainment) | ❌ No | Add back in tax return |
| Director's lunch at the office | ✅ Yes | ✅ Yes | ❌ No | Post to DLA |
| Travel to a personal event on company card | ✅ Yes | ✅ Yes | ❌ No | Post to DLA |
| Business-related training travel | ❌ No | ❌ No | ✅ Yes | Allowable |
| Commute from home to work | ✅ Yes | ✅ Yes | ❌ No | Post to DLA or add back in tax return |
Why This Matters for Directors
Incorrectly claiming personal or disallowable expenses can lead to HMRC inquiries, penalties, and potential tax implications under Section 455 tax if wrongly treated in the Director’s Loan Account.
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If a director benefits personally from a company-paid expense, HMRC may view it as a benefit-in-kind (BIK), leading to additional income tax and National Insurance liabilities.
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If the expense is considered a loan to the director and remains unpaid after 9 months post-year-end, a 33.75% Corporation Tax charge applies under Section 455 rules.
Final Takeaway: Best Practices for Directors
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If the expense is business-related but not allowable, record it in accounts and add it back in the tax return.
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If it’s personal, post it to the Director’s Loan Account (DLA) to avoid tax issues.
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Maintain clear documentation of expenses and their business purpose to support HMRC compliance.
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Work with an accountant to ensure correct tax treatment and avoid unexpected liabilities.
By properly distinguishing between allowable, disallowable, and personal expenses, you can remain compliant with HMRC and avoid unnecessary tax complications.
Need expert advice on Director’s Loan Accounts, allowable expenses, and tax planning? Speak to a tax specialist today to ensure you’re handling expenses the right way!